SEP IRA vs Solo 401(k) for the Self-Employed
A solo 401(k) usually allows larger contributions at moderate income, and does not block a backdoor Roth.
At a glance
Figures checked 1 Sep 2026
Minimum investment
None
Tracks
Total additions capped at $72,000 for 2026
Tax treatment
Pre-tax or Roth depending on the plan
What to take away
- A solo 401(k) allows both an employee deferral and an employer contribution, so it reaches the cap at lower income.
- SEP IRA balances count in the pro-rata calculation and can spoil a backdoor Roth.
- Solo 401(k) plans may require an annual filing once assets exceed a threshold.
| SEP IRA | Solo 401(k) | |
|---|---|---|
| Contribution structure | Employer only, percentage of compensation | Employee deferral plus employer contribution |
| Roth option | Limited | Commonly available |
| Loans | No | Sometimes permitted |
| Affects backdoor Roth | Yes, counts in pro-rata | No |
| Admin burden | Very low | Moderate; annual filing above an asset threshold |
| Employees | Must cover eligible employees | Owner and spouse only |
At modest self-employment income the solo 401(k) generally allows a larger contribution because the employee deferral is not tied to a percentage of profit. At high income both can reach the overall additions cap.
If you already run a backdoor Roth each year, opening a SEP IRA can make future conversions largely taxable. Check the interaction before choosing.
Common questions
Technically possible in some structures, but the overall limits still apply and the complexity rarely pays. Pick one.