Retirement Plan Comparison for Self-Employed: SEP IRA vs. Solo 401(k) vs. SIMPLE IRA

By Yarik Yarosh, CPA ·September 5, 2026 ·6 min read

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

Self-employed retirement plans serve two purposes: (1) reducing current-year taxable income and (2) building tax-deferred (or tax-free, if Roth) retirement savings. The three main options for self-employed business owners are the SEP IRA, Solo 401(k), and SIMPLE IRA. The Solo 401(k) generally allows the highest total contributions because it combines an employee deferral ($23,500 in 2025) with an employer profit-sharing contribution (25% of compensation). The SEP IRA is limited to the employer contribution only (25% of net self-employment income). The SIMPLE IRA has lower deferral limits ($16,500) but requires mandatory employer matching. SECURE 2.0 introduced a “super catch-up” contribution of $11,250 for participants aged 60-63, on top of the regular catch-up.

✓Key takeaway

2025 retirement plan contribution limits:

Plan	Employee Deferral	Employer Contribution	Catch-Up (50+)	Super Catch-Up (60-63)	Total Maximum
Solo 401(k)	$23,500	25% of compensation	$7,500	$11,250	$70,000 (or more with catch-up)
SEP IRA	None	25% of net SE income (up to $70,000)	None	None	$70,000
SIMPLE IRA	$16,500	3% match or 2% non-elective	$3,500	$5,250	~$25,250
Traditional/Roth IRA	$7,000	None	$1,000	None	$8,000

Side-by-side comparison:

Feature	Solo 401(k)	SEP IRA	SIMPLE IRA
Best for	Solo business owner, no employees	Simple setup, higher income	Small employer, under 100 employees
Employee deferral	Yes ($23,500)	No	Yes ($16,500)
Roth option	Yes (employee portion)	No	Yes (starting 2024)
Loan provision	Optional (up to $50,000)	No	No
Employees allowed	No (except spouse)	Yes (must cover all eligible)	Yes (must cover all eligible)
Setup deadline	December 31	Tax filing deadline (with extensions)	October 1 of the plan year
Contribution deadline	Tax filing deadline (with extensions)	Tax filing deadline (with extensions)	January 30 (employee) / tax filing (employer)
IRS reporting	Form 5500-EZ (if assets > $250K)	None	None

The Solo 401(k) advantage at moderate income ($75,000-$150,000): At $100,000 net self-employment income:

Plan	Maximum Contribution	Tax Savings (24%)
Solo 401(k)	$23,500 + $18,587* = $42,087	$10,101
SEP IRA	$18,587*	$4,461
SIMPLE IRA	$16,500 + $3,000** = $19,500	$4,680

*25% of net SE income after the SE deduction ($100,000 x 92.35% = $92,350; minus 50% SE tax deduction; employer contribution calculated on adjusted amount) **3% mandatory match on $100,000 = $3,000

The Solo 401(k) allows $42,087 vs. $18,587 for the SEP IRA: $23,500 more in deductions.

Which retirement plan is best for your situation?

Hypothetical example

Round numbers. Comparing three contractors at different income levels.

Contractor A: $60,000 net profit, sole proprietor, no employees, age 35

Plan	Contribution	Tax Savings	Setup Cost
Solo 401(k)	$23,500 + $11,074 = $34,574	$7,617	$0 (Fidelity)
SEP IRA	$11,074	$2,436	$0
SIMPLE IRA	N/A (no employees, Solo 401k better)	N/A	N/A
Roth IRA	$7,000	$0 (after-tax, grows tax-free)	$0

Winner: Solo 401(k). Can contribute $34,574 vs. $11,074 (SEP) or $7,000 (Roth IRA).

The $23,500 employee deferral is the difference-maker. At $60,000, the Solo 401(k) shelters over half the income.

Contractor B: $150,000 net profit, S-Corp, 2 employees, age 45

S-Corp salary: $80,000. Employees: 2 full-time at $45,000 each.

Plan	Owner Contribution	Employee Obligation	Total Plan Cost
SEP IRA	$20,000 (25% of $80K salary)	$22,500 (25% of $90K total wages, ALL eligible employees)	$42,500
Solo 401(k)	N/A (can’t use with employees)	N/A	N/A
SIMPLE IRA	$16,500 + $2,400 match	$2,700 match (3% of $90K)	$21,600
401(k) with safe harbor match	$23,500 + $20,000	$3,600 match (4% of $90K)	$47,100

With employees, the Solo 401(k) is no longer available. The SEP IRA requires contributing 25% for ALL eligible employees (expensive). The SIMPLE IRA has a lower match obligation. A traditional 401(k) with safe harbor match costs the most but gives the owner the highest contribution.

For Contractor B: the SIMPLE IRA is the best value. The owner contributes $16,500 in deferrals + $2,400 in match, for $18,900 total. The employer match for the two employees costs $2,700. Total cost: $21,600, of which $18,900 benefits the owner.

Contractor C: $250,000 net profit, S-Corp, no employees, age 62 (SECURE 2.0 super catch-up)

S-Corp salary: $120,000.

Solo 401(k) contribution:

Employee deferral: $23,500
Super catch-up (age 60-63): $11,250
Employer profit sharing: $30,000 (25% of $120,000)
Total: $64,750

Tax savings at 32% bracket: $64,750 x 32% = $20,720

At age 62, the super catch-up adds $11,250 on top of what was previously available. This is a SECURE 2.0 benefit that applies only from ages 60 to 63 (at age 64, the regular catch-up of $7,500 applies instead).

The Roth Solo 401(k) strategy: The employee deferral portion ($23,500 + $11,250 catch-up) can go to a designated Roth account within the Solo 401(k). The employer portion must be pre-tax (traditional).

At age 62 with a long time horizon? No, but at age 35:

$23,500/year in Roth 401(k) for 30 years at 7% = $2.36 million (all tax-free)
The same $23,500 in traditional 401(k) grows to the same $2.36 million but is taxed at withdrawal

The Roth option makes sense when:

The owner is in a lower bracket now than expected in retirement
The owner wants tax diversification (some pre-tax, some Roth)
The owner is young with decades of growth ahead

Provider comparison:

Provider	Solo 401(k)	SEP IRA	Fees
Fidelity	Yes (free setup)	Yes (free)	$0
Schwab	Yes (free setup)	Yes (free)	$0
Vanguard	Yes ($20/year per fund)	Yes ($20/year per fund)	$20-$40/year
E-Trade	Yes (free setup)	Yes (free)	$0

All major brokerages offer free Solo 401(k) and SEP IRA setup. The actual cost is $0 for the plan, plus the CPA’s time to calculate contributions and file Form 5500-EZ if assets exceed $250,000.

Contribution deadlines:

Plan	Must Be Established By	Contributions Due By
Solo 401(k)	December 31 of the plan year	Tax filing deadline (with extensions)
SEP IRA	Tax filing deadline (with extensions)	Tax filing deadline (with extensions)
SIMPLE IRA	October 1 of the plan year	30 days after year-end (employee) / filing deadline (employer)

The SEP IRA has the most flexible deadline: both the plan setup AND the contributions can be made up to the tax filing deadline (October 15 with extension). A sole proprietor who had a profitable year can set up and fund a SEP IRA retroactively.

The Solo 401(k) must be ESTABLISHED by December 31, even though contributions can be made later. Missing the December 31 deadline means waiting until next year.

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

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Cite this page

Yarik Yarosh, CPA. "Retirement Plan Comparison for Self-Employed: SEP IRA vs. Solo 401(k) vs. SIMPLE IRA." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-retirement-plan-comparison-sep-solo-401k-simple

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