Which lets me contribute more — a Solo 401(k) or a SEP IRA?

At almost any income below roughly $280,000 of compensation, the Solo 401(k) wins, often by a wide margin. It adds an employee salary deferral ($23,500 in 2025, $24,500 in 2026) on top of the same 25%-of-compensation employer contribution a SEP offers. Example: on an $80,000 S-Corp salary, a SEP maxes at $20,000 while a Solo 401(k) reaches $43,500. The two only converge at high income, where 25% of compensation already maxes the plan on its own.

I'm an S-Corp owner — what is my contribution based on?

Your W-2 wages, not your distributions. For both a SEP and a Solo 401(k), the employer contribution is 25% of your salary only — the distributions you take to save self-employment tax do not count toward retirement. That means the low salary you might choose to minimize payroll tax also caps your retirement contribution, so the two decisions have to be made together. The Solo 401(k) cushions a low salary better because its employee deferral is a flat dollar amount, not a percentage.

Can I have both a SEP IRA and a Solo 401(k)?

You can open both, but for the same business it rarely helps: the employer contributions across both plans share a single overall per-person limit ($70,000 in 2025, $72,000 in 2026, before catch-up), so a second plan does not double your room. For most owners it is cleaner to pick one. The exception worth a conversation is when you have genuinely separate, unrelated businesses — then the limits can apply per business.

What are the setup deadlines for each plan?

A SEP IRA can be set up and funded as late as your business return due date, including extensions — so you can open one after year-end and still claim it for the prior year. A Solo 401(k) can now also be established by the business return due date with extensions under the SECURE Act, a change from the old December 31 deadline. The Solo 401(k) does require a one-time plan document, and an annual Form 5500-EZ once plan assets reach $250,000.

Does a Solo 401(k) require an annual tax filing?

Only once the plan holds $250,000 or more in assets at year-end — at that point you file a Form 5500-EZ each year, a short information-only return. Below $250,000 there is no filing. A SEP IRA never requires a 5500 filing at all, which is its main advantage in simplicity. The 5500-EZ is straightforward, but the late-filing penalties are steep, so it is not something to skip once you cross the threshold.

Solo 401(k) vs SEP IRA: A Florida CPA's Guide for the Self-Employed

Solo 401(k) vs SEP IRA: A Florida CPA's Guide for the Self-EmployedBy Timothy LeGendre, CPA · Florida License #AC62625 · Last reviewed 2026-07-02A Florida CPA compares the Solo 401(k) and SEP IRA for self-employed and S-Corp owners — contribution limits, setup, and which one saves more tax.For most self-employed people and S-Corp owners, a Solo 401(k) allows a larger contribution than a SEP IRA at the same income because it has two buckets where the SEP has one. A SEP's only contribution is an employer piece of up to 25% of compensation. A Solo 401(k) adds an employee salary deferral — $23,500 for 2025, $24,500 for 2026 — on top of that same 25% employer contribution. On an $80,000 S-Corp salary a SEP maxes at $20,000, while a Solo 401(k) reaches $43,500 — more than double. The plans only converge above roughly $280,000 of compensation, where 25% alone maxes the plan. The SEP's advantage is simplicity: no plan document and no annual filing, set up in an afternoon. The critical S-Corp point: contributions are based on W-2 wages, not distributions, so the low salary chosen to save self-employment tax also caps the retirement contribution. The total per-person limit is $70,000 (2025) / $72,000 (2026), with an ages-60-63 super catch-up of $11,250. A Solo 401(k) requires a Form 5500-EZ once assets reach $250,000, and can offer Roth contributions and participant loans — features a SEP generally cannot.

Frequently asked questions

Which lets me contribute more — a Solo 401(k) or a SEP IRA?: At almost any income below roughly $280,000 of compensation, the Solo 401(k) wins, often by a wide margin. It adds an employee salary deferral ($23,500 in 2025, $24,500 in 2026) on top of the same 25%-of-compensation employer contribution a SEP offers. Example: on an $80,000 S-Corp salary, a SEP maxes at $20,000 while a Solo 401(k) reaches $43,500. The two only converge at high income, where 25% of compensation already maxes the plan on its own.
I'm an S-Corp owner — what is my contribution based on?: Your W-2 wages, not your distributions. For both a SEP and a Solo 401(k), the employer contribution is 25% of your salary only — the distributions you take to save self-employment tax do not count toward retirement. That means the low salary you might choose to minimize payroll tax also caps your retirement contribution, so the two decisions have to be made together. The Solo 401(k) cushions a low salary better because its employee deferral is a flat dollar amount, not a percentage.
Can I have both a SEP IRA and a Solo 401(k)?: You can open both, but for the same business it rarely helps: the employer contributions across both plans share a single overall per-person limit ($70,000 in 2025, $72,000 in 2026, before catch-up), so a second plan does not double your room. For most owners it is cleaner to pick one. The exception worth a conversation is when you have genuinely separate, unrelated businesses — then the limits can apply per business.
What are the setup deadlines for each plan?: A SEP IRA can be set up and funded as late as your business return due date, including extensions — so you can open one after year-end and still claim it for the prior year. A Solo 401(k) can now also be established by the business return due date with extensions under the SECURE Act, a change from the old December 31 deadline. The Solo 401(k) does require a one-time plan document, and an annual Form 5500-EZ once plan assets reach $250,000.
Does a Solo 401(k) require an annual tax filing?: Only once the plan holds $250,000 or more in assets at year-end — at that point you file a Form 5500-EZ each year, a short information-only return. Below $250,000 there is no filing. A SEP IRA never requires a 5500 filing at all, which is its main advantage in simplicity. The 5500-EZ is straightforward, but the late-filing penalties are steep, so it is not something to skip once you cross the threshold.