SEP IRA vs. Solo 401(k): Which Saves More for a One-Owner Business in 2026?

If you run your business on your own, you’ve probably been told to “open a retirement account for the tax break.” That’s good advice, but it skips the part that matters. Which account? How much can you put in? And what does it actually save you?

This guide covers the two plans built for self-employed owners: the SEP IRA and the solo 401(k). We’ll walk through how each one works, run the numbers on $100,000 of profit, and help you figure out which fits your situation.

Anyone can look up the limits. The harder part is knowing which plan fits your business, and having someone bring it up with you before the deadline instead of after it.

This guide is for self-employed owners who file a Schedule C and have no employees. That usually means you’re a sole proprietor, or you own a single-member LLC that hasn’t elected S corp status. It also means you’re not on payroll, and there’s no payroll in the business at all.

If you have employees, the rules change quite a bit. We’ll touch on that at the end.

A SEP IRA (Simplified Employee Pension) is a retirement account funded from your self-employment income. Your contribution is based on your net profit, which is your gross income minus your business expenses.

For a Schedule C owner, you can generally contribute roughly 18% to 20% of your net profit. The exact number comes from an IRS calculation that first reduces your profit by half of your self-employment tax. For 2026, total SEP contributions can’t exceed $72,000.

The SEP IRA is usually the easiest retirement plan to set up. Most banks and brokerages offer one, and the paperwork is light.

A solo 401(k) is a 401(k) plan for a business with no employees other than the owner (and a spouse, if they work in the business). If you’ve ever had a 401(k) through an employer, it works the same way. The difference is that you’re both the employee and the employer.

That means you can contribute two ways:

Both pieces together can’t exceed $72,000 for 2026, not counting catch-up contributions.

Solo 401(k)s are offered through specific providers rather than every bank. We’re happy to share who we work with and recommend for ease of use.

This is where the difference shows up. Say your net profit for 2026 is $100,000, you’re under 50, and you have the cash to fund the full amount.

At the same income, the solo 401(k) allows more than double the contribution. At lower and middle income levels, the employee deferral is what pulls the solo 401(k) ahead, because the SEP only has the profit-based piece.

As your profit grows, the gap narrows. At a high enough income, both plans can reach the same $72,000 cap.

So if you’re trying to put away as much as you can in a single year and your income is on the lower side, the solo 401(k) is typically the way to contribute the most. A bigger contribution also usually means bigger federal income tax savings.

No. This is the part people most often get wrong.

SEP IRA and solo 401(k) contributions for yourself are not a deduction on your business. They’re a deduction against your taxable income on your personal federal tax return.

That means they can lower your federal income tax, and your state income tax if your state follows the federal rules. They don’t lower your net profit on Schedule C, and they don’t lower your self-employment tax. If you’re in Wyoming, there’s no state income tax, so the benefit is federal only.

Both plans give you more time than a traditional or Roth IRA.

That extra time can be helpful if you need a few more months to save up the cash.

The right choice depends on your profit, your cash flow, and your goals. That’s why it’s worth running your real numbers before you open anything.

This also isn’t a decision that should wait for tax season. For our clients, it comes up in our regular meetings throughout the year, while there’s still time to plan the cash and pick the right account.

A lot. A solo 401(k) generally stops qualifying once you hire a non-spouse employee who meets the plan’s eligibility rules. A SEP IRA with eligible employees requires you to contribute the same percentage of pay for them as you do for yourself. If you have employees or plan to hire, talk with your CPA before choosing a plan.

Choosing a plan is easier when someone walks through it with you. We’ll look at your actual profit, run the math on both options, and give you a straight answer on which one fits.

That’s not a once-a-year conversation for us. We meet with our clients four times a year, answer within one business day, and you’ll never be charged for asking a question. You shouldn’t have to figure out the financial side of your business on your own.