Retirement Plans for Self-Employed: SEP-IRA vs Solo 401(k) vs SIMPLE (2026)

The biggest tax-deferred dollar lever for self-employed people: retirement plan contributions. They reduce current-year tax AND build long-term wealth. Here's how to pick.

The 3 main options

SEP-IRA (Pub 560)

• Up to 25% of net SE income (effectively ~20% after the SE tax adjustment)
• Max contribution 2025: $70,000
• Can be funded up to your tax filing deadline (incl. extensions)
• Easy to open at any custodian (Vanguard, Fidelity, Schwab)
• All contributions are employer-only (you, as the employer)
• Drawback: if you have employees, you must contribute the same % for them

Solo 401(k) (a.k.a. one-participant 401(k))

• Employee deferral: up to $23,500 in 2025 ($31,000 if age 50+)
• Employer (profit-sharing) match: up to 25% of net SE income
• Combined max: $70,000 in 2025 (or $77,500 with catch-up)
• Roth option available — pay tax now, withdraw tax-free in retirement
• Loan provisions allowed (up to $50K or 50% of balance)
• Drawback: only for businesses with no W-2 employees other than spouse

SIMPLE IRA

• Employee deferral: up to $16,500 in 2025 ($20,000 if age 50+)
• Employer match: 3% match OR 2% nonelective
• Lower contribution limits but easier admin than 401(k)
• Best for businesses with 2-100 employees

Side-by-side for a $200K self-employed person

After SE tax (~14.13% on the 92.35% portion), net SE income subject to retirement contribution math: ~$185,000

Plan	Employee deferral	Employer / SEP	Total
SEP-IRA	n/a	~$37,000 (20% × $185K)	$37,000
Solo 401(k)	$23,500	~$37,000	$60,500
SIMPLE IRA	$16,500	$5,550 (3% × $185K)	$22,050

Solo 401(k) wins by ~$23K of additional tax-deferred contribution at this income level. At a 32% marginal federal + state rate, that's roughly $7,400 in current-year tax savings the SEP can't match.

When each plan is best

• Solo 401(k) — solo operator (just you, optionally your spouse), want to max contributions, want a Roth option, sometimes need plan loans → almost always the right pick if you have no employees
• SEP-IRA — solo operator, want zero admin, contribute spuradically, often used by freelancers + 1099 contractors → simpler but worse limits
• SIMPLE IRA — established small biz with 2–100 employees that wants something between a SEP and a full 401(k)
• Defined Benefit Plan — high-income (>$300K) older self-employed pros who want to defer >$100K/year. Complex, requires actuarial work, but legitimate

Deadlines

Plan	Setup deadline	Funding deadline
SEP-IRA	Tax filing date + extensions	Tax filing date + extensions
Solo 401(k)	Dec 31 of tax year	Tax filing date + extensions
SIMPLE IRA	Oct 1 of tax year	Tax filing date (not extensions)

The Solo 401(k) must be open by Dec 31 to count for that year — even though you can fund it later. SEP can be set up and funded any time up to your filing deadline.

Where the deduction goes

For sole proprietors / single-member LLCs:

• The contribution is an above-the-line deduction on Schedule 1, Line 16 (Form 1040)
• It reduces AGI but NOT self-employment tax (SE tax is calculated before the retirement deduction)

For S-Corp owners:

• The employer (corp) match is a deduction on Form 1120-S Line 17 (Pension, profit-sharing)
• The employee deferral comes out of YOUR W-2 wages → reduces Box 1 (taxable wages)

QBI interaction

Retirement contributions reduce AGI, which can pull you under the QBI phase-out thresholds ($250K single / $500K MFJ in 2025). For high earners, this is a double win — current deduction PLUS preserving the 20% QBI deduction.

Example: married joint filer at $510K AGI before retirement contributions. They're $10K over the QBI phase-out. A $10K Solo 401(k) contribution drops AGI to $500K, recovering the full 20% QBI deduction. If their qualified business income is $250K, that's another $50K deduction.

Where to open one

• Vanguard Solo 401(k) — free, no Roth option as of 2024
• Fidelity Solo 401(k) — free, supports Roth + after-tax contributions
• Schwab Solo 401(k) — free, easy admin
• Carry, Ocho — premium platforms with mega backdoor Roth, business credit cards, more flexibility (paid)

How Accountaxed helps

Accountaxed projects your retirement contribution capacity quarterly based on year-to-date net income. Set up the contribution category in your chart of accounts (Pension and Profit-Sharing on the IRS form mapping), and the engine flows it to the correct line on your return.

Plan your retirement contribution → · IRS Retirement Plans for Small Business