SEP IRA vs. Solo 401(k)
Self-employed individuals and small business owners commonly choose between a SEP IRA and a Solo 401(k) for retirement savings, each with different contribution structures and features.
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SEP IRA
A retirement plan for self-employed individuals and small business owners funded entirely through employer-side contributions, with a simple setup process and relatively low administrative burden.
- Simple to set up and maintain with minimal paperwork
- Contribution limits can be relatively high based on business income
- No employee salary-deferral contribution option, only employer contributions
- No Roth version available, unlike some Solo 401(k) plans
Solo 401(k)
A 401(k) plan designed for self-employed individuals with no full-time employees other than a spouse, allowing both employee salary-deferral and employer-side contributions.
- Allows both employee and employer contributions, which can increase total savings potential
- Many providers offer a Roth contribution option
- More administrative setup and, above a certain balance, annual filing requirements
- Not available for businesses with employees other than a spouse
Which one makes sense for you?
A SEP IRA offers simplicity and is easy to maintain for sole proprietors without employees. A Solo 401(k) can allow for higher total contributions through both employee and employer contribution components, and often offers a Roth option, at the cost of somewhat more administrative complexity.
Key cost factors.
- Business structure and whether there are any employees beyond a spouse
- Desired total contribution amount relative to business income
- Interest in a Roth contribution option
- Comfort level with the administrative requirements of each plan type
Before you decide.
- Does my business have any employees who would need to be covered under either plan?
- Which plan type would allow a higher total contribution given my income?
- Do I want the option to make Roth contributions as part of my retirement plan?
Frequently asked questions.
Can I have both a SEP IRA and a Solo 401(k)?
Generally, self-employed individuals choose one or the other for a given business, since combining them can complicate contribution limit calculations — a tax professional can clarify what applies to a specific situation.
All figures on this page are illustrative examples for general education, not quotes, appraisals, or guarantees of actual pricing. Actual costs vary by provider, location, project scope, and market conditions — always get a specific quote before making a purchasing decision.
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