Solo 401(k) vs. SEP IRA vs. SIMPLE IRA: Which Retirement Plan Is Best for Your Business?

By Yarik Yarosh, CPA ·September 5, 2026 ·3 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

The three most common retirement plans for small business owners are the Solo 401(k), the SEP IRA, and the SIMPLE IRA. Each has different contribution limits, employee obligations, administrative requirements, and deadlines. The right choice depends on the business owner’s income level, whether they have employees, and how much they want to contribute.

✓Key takeaway

Solo 401(k): Highest contribution capacity. $23,500 employee deferral + 25% of compensation (employer contribution), up to $70,000 combined (2025). Available ONLY to business owners with no common-law employees (other than a spouse). Lowest administrative burden for solo operators. Employee deferral deadline: December 31. Employer contribution deadline: tax filing deadline with extensions.

SEP IRA: Employer-contribution-only (no employee deferral). Up to 25% of compensation, max $70,000 (2025). Available to any business, including those with employees. The catch: the same percentage must be contributed for ALL eligible employees. Can be established and funded as late as the tax filing deadline (including extensions). Simplest to establish (no plan document beyond the IRS model, Form 5305-SEP).

SIMPLE IRA: Lower contribution limits. $16,000 employee deferral (2025) + mandatory employer contribution (3% match or 2% non-elective). Available to businesses with 100 or fewer employees. Must be established by October 1 of the year it takes effect. Lower administrative cost than 401(k) plans. Employee deferral deadline: within 30 days of year-end. Employer match deadline: tax filing deadline with extensions.

How do the plans compare at different income levels?

Hypothetical example

Round numbers. A sole proprietor (no employees) compares the three plans at different net profit levels.

At $60,000 net profit (SE-adjusted: $55,710):

Solo 401(k): $23,500 + (25% x $55,710) = $23,500 + $13,928 = $37,428
SEP IRA: 25% x $55,710 = $13,928
SIMPLE IRA: $16,000 + (3% x $60,000) = $16,000 + $1,800 = $17,800

Solo 401(k) wins by $19,628 over SEP and $19,628 over SIMPLE.

At $120,000 net profit (SE-adjusted: $111,420):

Solo 401(k): $23,500 + $27,855 = $51,355
SEP IRA: $27,855
SIMPLE IRA: $16,000 + $3,600 = $19,600

Solo 401(k) wins by $23,500 over SEP and $31,755 over SIMPLE.

At $280,000 net profit (SE-adjusted: $259,980):

Solo 401(k): $23,500 + $64,995 = $70,000 (hits the cap)
SEP IRA: $64,995
SIMPLE IRA: $16,000 + $8,400 = $24,400 (and you can’t have a SIMPLE if you have another employer plan)

Solo 401(k) wins at every income level when there are no employees.

Illustrative numbers only, not a real client and not advice for your facts.

When is the SEP IRA the better choice?

The SEP IRA beats the Solo 401(k) in one specific scenario: the business owner needs to establish a plan AFTER the tax year has ended. The Solo 401(k) must be established by December 31 of the tax year (the employee deferral deadline). The SEP IRA can be established and funded as late as the tax filing deadline, including extensions (October 15 for calendar-year filers on extension).

A business owner who realizes in March (while preparing last year’s return) that they need a retirement deduction can establish a SEP IRA and make the full employer contribution for the prior year. A Solo 401(k) can’t be established retroactively.

When is the SIMPLE IRA the better choice?

The SIMPLE IRA is the better choice when: (1) The business has employees and wants the lowest employer cost (the 3% match only applies to participating employees, and many lower-paid employees do not participate). (2) The business owner wants employee deferrals but can’t afford the Safe Harbor 401(k) administration costs ($1,500-$3,000/year TPA). (3) The business has 5-20 employees and the 3% match is cheaper than the Safe Harbor 401(k)‘s 3% non-elective on all eligible employees.

Related guides:

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Cite this page

Yarik Yarosh, CPA. "Solo 401(k) vs. SEP IRA vs. SIMPLE IRA: Which Retirement Plan Is Best for Your Business?." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-retirement-plan-comparison

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.