SEP-IRA vs. Solo 401(k) vs. SIMPLE IRA: Retirement Plans for the Self-Employed (2026 Limits)
Note: Some future links on this site may be affiliate links. We never claim hands-on testing; guides are researched from the public sources listed in each article.
How we wrote this: A summary of IRS pages on retirement plans for self-employed people, one-participant 401(k) plans, calculating your own contribution, and the 2026 cost-of-living limits (linked below), checked October 29, 2026. It is general information, not tax or investment advice. We don't recommend any financial firm.
If you work for yourself, there is no employer 401(k), but the IRS says you have "many of the same options to save for retirement on a tax-deferred basis." The three most common are the SEP-IRA, the one-participant (solo) 401(k) and the SIMPLE IRA. Late in the year is when the choice matters most, because set-up deadlines differ.
2026 limits at a glance
From the IRS cost-of-living adjustment table:
| Limit | 2026 | 2025 |
|---|---|---|
| SEP maximum contribution | $72,000 | $70,000 |
| 401(k) elective deferral | $24,500 | $23,500 |
| 401(k) catch-up (age 50+) | $8,000 | $7,500 |
| Defined contribution plan limit (total) | $72,000 | $70,000 |
| SIMPLE maximum contribution | $17,000 | $16,500 |
| SIMPLE catch-up (age 50+) | $4,000 | $3,500 |
| Compensation that can be counted | $360,000 | $350,000 |
| IRA contribution limit | $7,500 | $7,000 |
SEP-IRA: simplest to set up
- How much: up to 25% of compensation, capped at $72,000 for 2026. All contributions are employer contributions; there are no salary deferrals.
- Set-up: the IRS says you can use Form 5305-SEP or an IRS-approved prototype plan from a financial institution, then open a SEP-IRA.
- Deadline: you can set up a SEP for a year as late as the due date of your tax return for that year, including extensions.
Solo 401(k): often the most room at moderate incomes
The IRS one-participant 401(k) page describes it as a regular 401(k) covering a business owner with no employees, or the owner and a spouse. You contribute in two roles:
- As the "employee": elective deferrals up to 100% of compensation, capped at $24,500 for 2026, plus catch-up contributions if you're 50 or older ($8,000, or $11,250 if you turn 60 to 63 in 2026). Deferrals can be pre-tax or Roth if the plan allows.
- As the "employer": nonelective contributions of up to 25% of compensation (for self-employed people, see the special calculation below).
- Total cap: $72,000 for 2026, not counting catch-ups.
Because the deferral doesn't depend on a percentage of profit, a solo 401(k) can allow larger contributions than a SEP at the same income. Other points from the IRS:
- No nondiscrimination testing while you have no employees. That ends if you hire eligible employees.
- Deferral limits are per person, not per plan. If you also have a 401(k) at a day job, your deferrals in both count toward the one $24,500 limit.
- File Form 5500-EZ once plan assets reach $250,000 at year end.
SIMPLE IRA: if you have, or plan to hire, a few employees
- How much: up to $17,000 in 2026 (plus a $4,000 catch-up at 50+, or $5,250 at ages 60–63), plus either a 2% fixed or 3% matching employer contribution.
- Set-up window: the IRS says generally January 1 through October 1. If you became self-employed after October 1, you can set one up for the year as soon as administratively feasible.
The self-employed math: 25% is really about 20%
For sole proprietors and partners, the IRS contribution calculation page explains that "compensation" means net earnings from self-employment minus half of your self-employment tax and minus your own contribution. Because the contribution is part of its own formula, the IRS uses a reduced rate: the plan rate divided by one plus the plan rate. The page's example turns a 10% plan rate into 9.0909%. By the same formula, a 25% plan rate becomes 20% (0.25 ÷ 1.25).
Rough example: $100,000 of Schedule C profit means about $14,130 of SE tax (the same figure the IRS uses in its example) and a $7,065 deduction for half of it. That leaves $92,935, and 20% of that is a SEP contribution of about $18,587. Publication 560's worksheets give the exact figure. Our guide to self-employment tax covers the SE tax part.
Contributions for yourself are deducted on Form 1040, Schedule 1, not on Schedule C.
Picking one
- Want minimal paperwork? SEP-IRA.
- Solo with moderate income and want to put away as much as possible? Compare a solo 401(k); the deferral piece usually makes the difference.
- Have a few employees and want employees to contribute from their pay? Look at a SIMPLE IRA.
A tax professional or the plan provider can run your numbers. Keep the paperwork with your business records.