How much more can a Solo 401(k) take than a SEP IRA in 2026, and what comes with it?

By Kaz · Verified 6 September 2026 · How this site checks figures

Up to $24,500 more for the 2026 tax year, while the Solo 401(k) total stays under the $72,000 annual additions limit for 2026. Measured on W-2 compensation under the 2026 limits, the gap holds to $190,000, shrinks above it and reaches $0 at $288,000.

The two accounts are often presented as a matter of preference between administrators. They are not. One of them accepts a category of money the other cannot accept at all, and it acquires two obligations the other never acquires — an annual return above a stated asset level, and a wage test that decides how a catch-up is taxed.

Checked 6 September 2026

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A Solo 401(k) can take up to $24,500 more than a SEP IRA for the 2026 tax year, because it accepts an employee deferral that a SEP IRA cannot accept at all. A SEP IRA takes an employer contribution and nothing else, limited to the lesser of 25% of compensation or $72,000 for the 2026 tax year. A Solo 401(k) takes an employee elective deferral of up to $24,500 for the 2026 tax year and an employer contribution as well, both counted against the same $72,000 annual additions limit for the 2026 tax year. The extra room ends where the cap binds, and it brings two things a SEP IRA never has: a Form 5500-EZ once plan assets pass $250,000 and a test that decides whether a catch-up must be Roth.

The arithmetic at six levels of compensation

Every row is calculated on W-2 compensation from an incorporated business. A sole proprietor's figures are produced differently, and the section after the table says why.

Two rows worked through. At $150,000 of compensation, 25% of $150,000 is $37,500 — the SEP maximum for the 2026 tax year, because it is below the $72,000 cap. The Solo 401(k) takes the same $37,500 as its employer contribution and adds the employee deferral of $24,500 for the 2026 tax year, so the total is $62,000 — still below the cap, so the full deferral survives.

At $250,000 of compensation, 25% of $250,000 is $62,500 for the SEP. The Solo 401(k) would be that $62,500 plus the deferral of $24,500 for the 2026 tax year, which is above the $72,000 annual additions limit, so it is cut back to $72,000. The difference between the two accounts at that compensation is $72,000 less $62,500 — that is $9,500 rather than the full deferral, because the cap has taken the rest.

The two turning points follow from the same arithmetic. The Solo 401(k) reaches the $72,000 cap at $190,000 of compensation, because 25% of $190,000 is $47,500 and $47,500 plus $24,500 is $72,000. The SEP catches up at $288,000 of compensation, because 25% of $288,000 is $72,000 on its own. Between those two points the advantage shrinks from $24,500 to $0 in a straight line, and above $288,000 the two accounts allow exactly the same amount.

SEP IRA and Solo 401(k) maximums by W-2 compensation, 2026 tax year

This site's own arithmetic from the published 2026 IRS limits, not a quotation from any IRS table. W-2 compensation from an incorporated business only, no catch-up contributions included, and no state or plan-level restriction reflected.

Source: Internal Revenue Service 2026 contribution limits, as listed in Sources.

Why a sole proprietor's own figures are smaller

The table assumes an incorporated business paying W-2 compensation to its owner-employee. For an unincorporated sole proprietor the employer contribution is not 25% of gross income. It is calculated on net earnings from self-employment after the deduction for half of self-employment tax, which produces a smaller figure than 25% of gross for the same headline income.

That calculation is not attempted here, because the rate it depends on is not in this site's ledger and a number reconstructed from memory is not a number. It is set out in Publication 560, Retirement Plans for Small Business (SEP, SIMPLE and Qualified Plans), at About Publication 560, which is where a sole proprietor's own figures have to be worked out. For a reader who is not paid on a W-2, the table shows the shape of the relationship and not their own figures.

Where the catch-up lands

The catch-up attaches to the elective deferral, so it exists in one account and not in the other. A participant aged 50 or above may add $8,000 for the 2026 tax year to a 401(k) deferral, and a participant who turns 60, 61, 62 or 63 during the year may add $11,250 for the 2026 tax year in place of that figure.

That widens the gap for an older owner-employee at compensation below the turning points, and it does something else as well: the Internal Revenue Service records that the $72,000 annual additions limit for the 2026 tax year excludes catch-up contributions, so the catch-up is not squeezed out when the cap binds.

One limit constrains both accounts equally. The annual compensation limit under section 401(a)(17) is $360,000 for the 2026 tax year, which caps the compensation a plan may count when it applies a percentage formula. Above that figure the percentage stops being applied to more compensation, though at these percentages the $72,000 cap has already bound long before.

What a Solo 401(k) adds after the contribution math: annual filing

$250,000 of plan assets is the trigger. The Internal Revenue Service states that "A one-participant plan sponsor must file a Form 5500-EZ (or a Form 5500-SF with the one-participant plan box checked) when the plan's total assets and the assets of all their other one-participant plans at the end of the plan year are greater than $250,000."

Two clauses do the work. The $250,000 is a combined total across every one-participant plan the sponsor maintains, not a per-plan figure, and it is measured at the end of the plan year. And the threshold falls away once: a return is required "in the final year of the plan, even if the plan assets prior to distribution or transfer were less than $250,000". A SEP IRA carries no return of this kind.

The Roth catch-up question a SEP never asks

In a plan with a Roth feature, a catch-up made in 2026 must be Roth if the participant's prior-year wages with the plan sponsor exceeded $150,000 for 2026, and those wages are the prior-year FICA wages in Box 3 of Form W-2 from the employer sponsoring the plan, not total business income. The final regulations give the other case: an individual with no FICA wages from that employer in the preceding calendar year, "for example, a partner who had only self-employment income", is not subject to the Roth catch-up requirement under the plan in the current year.

The question arises on one side of this comparison only. A catch-up attaches to an elective deferral, and a SEP IRA has none, so nothing in a SEP turns on whether the catch-up must be Roth. In a Solo 401(k) with a Roth feature it decides how the $8,000 or $11,250 is taxed.

What the SEP keeps simpler

Three things are true of the SEP that the arithmetic above does not show. It is established on a single form rather than through a plan document. At the balances most sole proprietors reach, it carries no annual return of its own, whereas a 401(k) plan acquires filing obligations as it grows. And its coverage rules reach employees: an employer with eligible employees has to cover them.

That last point is the one that changes the comparison from a preference to a constraint. A Solo 401(k) is designed for an owner-only business, and Publication 560 sets out the eligibility conditions. Where those conditions are not met, the Solo 401(k) is not a less generous option than the SEP — it is not an available option, and the $24,500 in the table is not on offer at any compensation.

Which accounts a given set of facts leaves open, and which are ruled out before any comparison starts, is set out in which US retirement account can you actually open.

Cost, and where the terms are written down

Neither account is free, and the charge is the part of the decision that the contribution limits say nothing about. A Solo 401(k) generally carries a plan document, a document-restatement cycle and an administrator's annual fee; a SEP IRA generally carries the custodian's account charges alone. No figure for any of them is in this site's ledger, so ask each administrator in writing for the set-up fee, the annual administration fee, the restatement fee and the transfer-out fee, in dollars for a full year. Those four numbers are what make two administrators comparable. What that arithmetic looks like on a real disclosed charge is in what it costs, and a disclosed percentage can be run through the fee calculator.

One administrator publishes its own Solo 401(k) plan documents and fee schedule: Read one administrator's own Solo 401(k) terms. That is a link to a provider's own documentation rather than a recommendation. Plan documents differ between administrators, so the comparison worth making is between their own written terms — the permitted investments, the restatement fee and the transaction charges — and not between summaries of them. Where the plan is a self-directed one, the prohibitions in section 4975 apply to what may be held and who may be dealt with, and those are set out in what a self-directed IRA forbids.

So what do you do

If W-2 compensation is $150,000 and the business has no employees beyond the owner and a spouse, the Solo 401(k) allows $62,000 against the SEP's $37,500 for the 2026 tax year, and the difference is the $24,500 deferral. If W-2 compensation is $288,000 or more, both accounts allow $72,000 for the 2026 tax year and the deferral buys nothing extra, so the decision runs on administration and cost rather than on capacity. Otherwise, do not decide yet: if the business pays anyone who might be an eligible employee, or if the income is reported as net earnings from self-employment rather than on a W-2, the figures above are not the reader's figures and Publication 560 is the document that produces them.

Frequently asked questions

Is the gap always $24,500?

No. The gap is $24,500 for the 2026 tax year only up to $190,000 of W-2 compensation; it is $9,500 at $250,000 and $0 at $288,000 because 25% alone equals the $72,000 limit for 2026.

Does the table work for an unincorporated sole proprietor?

No. The employer contribution for a sole proprietor is calculated on net earnings from self-employment after the deduction for half of self-employment tax, not on 25% of gross income, so every SEP figure in the table would be smaller. The rate involved is not in this site's ledger and is not reproduced here; Publication 560, Retirement Plans for Small Business (SEP, SIMPLE and Qualified Plans), sets out the calculation.

Sources

• 2026 elective deferral limit of $24,500: 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500, Internal Revenue Service. Checked 20 August 2026.
• 2026 catch-up of $8,000 at age 50 and above: 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500, Internal Revenue Service. Checked 20 August 2026.
• 2026 higher catch-up of $11,250 at ages 60 to 63; 2026 section 415(c) annual additions limit of $72,000, excluding catch-up contributions; 2026 annual compensation limit of $360,000: Notice 2025-67, Internal Revenue Service. Checked 20 August 2026.
• 2026 SEP IRA maximum of $72,000 and the rule that employer contributions are limited to the lesser of 25% of the employee's compensation or $72,000 for 2026: SEP contribution limits (including grandfathered SARSEPs), Internal Revenue Service. Checked 20 August 2026.
• The Form 5500-EZ filing rule for one-participant plans, quoted verbatim, including the combined $250,000 threshold measured at the end of the plan year and the final-year requirement: Financial advisors: are assets in your clients' one-participant plans more than $250,000?, Internal Revenue Service. Checked 6 September 2026.
• The 2026 Roth catch-up requirement and its $150,000 prior-year wage threshold with the plan sponsor: Retirement topics — catch-up contributions, Internal Revenue Service. Checked 6 September 2026.
• The rule that the test is based on prior-year FICA wages from the employer sponsoring the plan, so that a partner with only self-employment income is treated differently: Internal Revenue Bulletin 2025-40, Internal Revenue Service. Checked 6 September 2026.
• Publication 560, Retirement Plans for Small Business (SEP, SIMPLE and Qualified Plans), for the sole-proprietor net-earnings calculation and the plan eligibility conditions: About Publication 560, Internal Revenue Service. Checked 20 August 2026.
• Section 4975 prohibited transactions and disqualified persons: Retirement topics — prohibited transactions, Internal Revenue Service. Checked 20 August 2026.
• The SEP and Solo 401(k) maximums at $60,000, $100,000, $150,000, $190,000, $250,000 and $288,000 of W-2 compensation — $15,000, $25,000, $37,500, $47,500, $62,500 and $72,000 for the SEP, and $39,500, $49,500, $62,000, $72,000, $72,000 and $72,000 for the Solo 401(k) — are this site's own arithmetic applying the 2026 limits above to W-2 compensation from an incorporated business. Calculated 20 August 2026.