SEP IRA vs Solo 401(k) for Freelancers: Which Lets You Save More in 2026?

• Want to save as much as possible? Choose the Solo 401(k). From about $44,000 to $252,000 of profit it allows exactly $24,500 more than a SEP for 2026, and it is the only one of the two with catch-up contributions.
• Missed December 31, or want no paperwork? Choose the SEP IRA. You can open and fund it up to your return's due date, including extensions, and it has no annual IRS filing.
• Very high profit? Above about $376,500 both reach the $72,000 limit. Only the catch-up (with a 401(k)) separates them.

For a self-employed person, both plans start from net earnings: Schedule C profit minus the deduction for half of self-employment tax. The employer contribution is 20% of that, the self-employed equivalent of the 25% plan limit (Publication 560's Rate Table for Self-Employed). A SEP stops there. A Solo 401(k) adds employee deferrals of up to $24,500, and the two together are capped at $72,000 for 2026.

2026 limits, single filer, no other job, no employees. The age 50+ column uses the $8,000 catch-up; in the years you turn 60 to 63 it can be $11,250. Figures come from the same code as the Solo 401(k) calculator.

At low profit the 401(k) lead is even bigger in relative terms. With $40,000 of profit, a SEP allows about $7,435, while a Solo 401(k) can take nearly all net earnings because the deferral isn't limited to 20%. At the top, a SEP reaches $72,000 once net earnings hit $360,000, which takes about $376,500 of profit.

The paperwork gap is real but small. A SEP can be set up with the IRS model form, Form 5305-SEP, which you keep rather than file, and the IRS says a SEP employer generally has no filing requirement. A one-participant 401(k) needs a written plan document from a provider and generally has to file Form 5500-EZ once its assets reach $250,000 at year-end.

Loans only exist on the 401(k) side. The IRS says loans aren't permitted from IRAs or IRA-based plans such as SEPs. A qualified plan may allow loans of up to the lesser of $50,000 or the greater of $10,000 and half the vested balance, if its document says so.

SEP IRA: you can set up a SEP for 2026 as late as the due date of your 2026 return, including extensions, and contributions are due by the same date. For most freelancers that is April 15, 2027, or October 15, 2027 with an extension.

Solo 401(k): Publication 560 says a qualified plan must be set up by the last day of the tax year to deduct contributions for that year, so open it by December 31, 2026. Deductible contributions can then be made up to the return's due date plus extensions. One exception helps a sole proprietor who misses December 31: with a brand-new 401(k) adopted after year-end, employee deferrals count for the first plan year only if they are paid in before the return's due date, without extensions.

If it is already late December, the practical choice is often between opening a 401(k) this week or settling for a SEP in the spring. The quarterly tax guide covers the January 15, 2027 estimated payment, which a large deductible contribution can make smaller.

• Solo 401(k) if you want the most room at moderate profit, you are 50 or older and want the catch-up, you might want a plan loan, or you use (or may use) the backdoor Roth.
• SEP IRA if it is past December 31, profit is very high and the catch-up doesn't matter, or you want the least administration. Some freelancers start with a SEP and move to a 401(k) once profit grows.
• Neither yet if you expect to hire employees soon. Both plans then have to cover eligible staff. Price that in first.

Whichever you pick, pre-tax contributions lower income tax, not self-employment tax. The 1099 tax calculator shows the effect on your full bill, and the self-employment tax guide explains why the SE tax stays put.

You also have a 401(k) at a day job

The $24,500 deferral limit is per person across every plan, so day-job deferrals shrink the Solo 401(k)'s advantage. The employer share from your own business is separate. If you already defer the full $24,500 at work, a Solo 401(k) and a SEP allow the same employer contribution, and the SEP is simpler.

You use the backdoor Roth

The Form 8606 instructions treat traditional SEP IRAs as traditional IRAs, so a SEP balance on December 31 counts in the pro-rata calculation and makes part of a backdoor Roth conversion taxable. A Solo 401(k) isn't an IRA and doesn't count.

A loss year

Publication 560 says you can't contribute for yourself in a year with a net loss from self-employment. Either plan can sit unfunded that year.

Hiring later

SEP contributions must use the same rate for every eligible employee: generally anyone 21 or older who worked for you in 3 of the last 5 years and earned at least $800 from you in 2026. A Solo 401(k) stops being a one-participant plan once eligible employees join.

1. IRS, Publication 560, Retirement Plans for Small Business (2025). Deduction Worksheet and Rate Table for Self-Employed, SEP eligibility ($800 for 2026), set-up and contribution deadlines, catch-up rules. Checked October 25, 2026.
2. IRS, Notice 2025-67. 2026 limits: $72,000 annual additions, $24,500 elective deferrals, $360,000 compensation. Checked October 25, 2026.
3. IRS, IR-2025-111: 401(k) limit increases to $24,500 for 2026. 2026 catch-up limits: $8,000 at 50+, $11,250 for ages 60-63. Checked October 25, 2026.
4. IRS, Simplified Employee Pension plan (SEP). Employer-only contributions, uniform rate for all employees, no filing requirement, no loans, Roth SEP IRAs, set-up deadline. Checked October 25, 2026.
5. IRS, One-participant 401(k) plans. Owner (and spouse) only, employee and employer contributions, per-person deferral limit, Form 5500-EZ at $250,000. Checked October 25, 2026.
6. IRS, Retirement plans FAQs regarding loans. No loans from SEPs; qualified plans may allow them. Checked October 25, 2026.
7. IRS, Rollover chart. SEP IRA to qualified plan (401(k)) rollovers are allowed. Checked October 25, 2026.
8. IRS, Instructions for Form 8606 (2025). "Traditional IRA" includes traditional SEP IRAs, so their value counts on line 6. Checked October 25, 2026.