A Simplified Employee Pension IRA (SEP-IRA) is exactly what the name suggests: simple. It's a retirement account designed for self-employed individuals and small business owners, and the defining feature is that only employer contributions are allowed. Since you're self-employed, that means you're wearing the employer hat — you contribute to your own account as the business owner.

For 2025, you can contribute up to 25% of your net self-employment compensation, capped at $70,000. In 2026, that ceiling rises to $72,000. The math for the self-employed is slightly more nuanced than that 25% figure implies, because you first have to reduce your net earnings by the deductible portion of your self-employment tax before calculating the contribution — which works out to roughly 20% of net self-employment income in practice.

The SEP-IRA's biggest selling point is operational simplicity. There are no annual IRS filing requirements (no Form 5500, no nondiscrimination testing). You can open one at virtually any major brokerage — Fidelity, Vanguard, Schwab — in about fifteen minutes. Contributions are flexible; you're not required to contribute every year, which is a genuine lifeline in lean business years.

One thing worth knowing upfront: SEP-IRAs do not allow catch-up contributions for people over 50. And there is no Roth option — all contributions are pre-tax, meaning you'll pay ordinary income taxes when you withdraw in retirement.

A Solo 401(k) — also called a one-participant 401(k) or individual 401(k) — is a traditional 401(k) plan designed specifically for business owners with no employees other than themselves (and possibly a spouse). What makes it uniquely powerful is that you wear two hats: as the employee and as the employer. That dual-contribution structure is what often makes the Solo 401(k) the superior option for high earners.

As the employee, you can contribute up to $23,500 in 2025 (rising to $24,500 in 2026) in elective deferrals. On top of that, as the employer, you can add profit-sharing contributions of up to 25% of your net self-employment compensation. The combined total can reach $70,000 in 2025 and $72,000 in 2026.

Here's where it gets even more compelling for people over 50: Solo 401(k)s allow catch-up contributions. If you're 50–59 or 64 and older, you can contribute an additional $7,500 in 2025 (increasing to $8,000 in 2026) on top of the base limit. If you're between ages 60 and 63, the SECURE 2.0 Act's enhanced catch-up provision allows up to $11,250 extra. That's a potential total of over $80,000 in annual contributions if you're in that age window and earning enough.

Solo 401(k)s also allow Roth contributions, loan provisions (up to the lesser of $50,000 or 50% of your vested balance), and voluntary after-tax contributions — none of which SEP-IRAs offer.

At first glance, both plans share the same maximum contribution limit ($70,000 in 2025). So why does the Solo 401(k) often allow you to actually save more?

The answer is the employee deferral component. With a SEP-IRA, every dollar you contribute counts against the 25% employer contribution formula. With a Solo 401(k), the employee deferral of up to $23,500 sits outside of that 25% limit. That means a solopreneur with relatively modest net earnings can max out a Solo 401(k) far more easily than a SEP-IRA.

Consider a freelance designer earning $60,000 in net self-employment income. Under a SEP- IRA, their maximum contribution is roughly $11,160 (about 18.6% of net income after the SE tax adjustment). Under a Solo 401(k), they could contribute $23,500 as the employee deferral alone — more than double — plus an employer contribution on top of that. The Solo 401(k) wins decisively at lower income levels.

At very high incomes — say, $250,000 or more in net earnings — both plans can reach the annual ceiling, and the SEP-IRA's simplicity starts to look more attractive by comparison.

The SEP-IRA isn't the inferior option across the board. There are real scenarios where it's the smarter choice:

You have employees. A Solo 401(k) is strictly for businesses with no full-time employees other than a spouse. If you have even one W-2 employee, a Solo 401(k) is off the table. A SEP-IRA can cover employees, though you'd be required to contribute the same percentage of compensation for every eligible worker.

You want minimal administration. A SEP-IRA has essentially zero ongoing paperwork. A Solo 401(k) requires you to file Form 5500-EZ with the IRS once your account balance exceeds $250,000, and setup involves adopting a formal plan document. Neither is particularly burdensome, but if you'd rather spend zero time on plan administration, the SEP-IRA is cleaner.

You opened your account late in the year. SEP-IRAs can be opened and funded up until the tax filing deadline (including extensions), giving you until as late as October 15 of the following year to make contributions for the prior tax year. Solo 401(k)s must be established by December 31 of the plan year, though contributions can be made up to the filing deadline. If it's January and you're scrambling to reduce last year's tax bill, a SEP-IRA may be your only option.

For most solopreneurs without employees who are in the early-to-mid stages of their income curve, the Solo 401(k) will outperform. The reasons:

You can contribute far more at lower income levels because of the employee deferral You get the Roth option, which is particularly valuable if you expect to be in a higher tax bracket in retirement Catch-up contributions can dramatically accelerate savings in your 50s and early 60s Loan provisions give you a financial safety net without triggering taxes, as long as you repay The administrative overhead is real but manageable. Most major custodians offer Solo 401(k) plan documents for free. Once it's set up, annual maintenance is minimal unless your balance crosses that $250,000 threshold.

Ask yourself three questions:

1. Do I have any W-2 employees? If yes, the Solo 401(k) is not an option — look at the SEP-IRA or a SIMPLE IRA. 2. Is my net self-employment income under ~$150,000? If yes, the Solo 401(k) almost certainly lets you contribute more.

3. Am I over 50? If yes, the Solo 401(k)'s catch-up contribution rules can make a massive difference in your retirement savings trajectory. If you answered no to all three, you're likely a high earner with no employees — in which case both plans can reach the same ceiling, and the SEP-IRA's simplicity may tip the scales.

Both the SEP-IRA and Solo 401(k) can be opened at any major brokerage including Fidelity, Vanguard, Charles Schwab, and TD Ameritrade. The process is straightforward — most can be completed online in under 30 minutes.

For a SEP-IRA, you'll sign IRS Form 5305-SEP or the brokerage's equivalent. For a Solo 401(k), you'll adopt a plan document (provided by the brokerage) and establish the account before December 31 of the year you want to begin contributing.

Both plans offer substantial tax advantages that most W-2 employees could only dream about. But if you're a solopreneur without employees, the Solo 401(k) is usually the stronger vehicle — especially if your income is under $150,000 or you're in your 50s looking to play catch-up. If you prize simplicity or have staff on payroll, the SEP-IRA is a rock-solid alternative.

The worst move? Doing nothing. Every year you delay is a year of tax-deferred compounding you can never get back.

Ready to take action? Visit NoBossly for more guides on building a financially resilient solo business — from tax strategy to retirement planning, we cover everything the salaried world doesn't teach you.

Retirement contributions are among the most valuable self-employed deductions, and they reshape your quarterly estimated payments. If you've made an S-corp election, contribution math changes — your salary, not distributions, drives limits.