Question 1

What's the maximum Solo 401(k) contribution?

Accepted Answer

For 2025, Solo 401(k) caps at $70,000 total ($77,500 if age 50+ with the $7,500 catch-up). The total breaks into: (1) employee elective deferral up to $23,500 (or $31,000 with catch-up) per IRC §401(k), and (2) employer-side contribution up to 25% of net self-employment earnings, with the combined total capped at the §415(c) limit ($70,000 / $77,500). Self-employment earnings for this calc are net Schedule C income minus half of self-employment tax — not gross revenue.

Question 2

What's the maximum SEP-IRA contribution?

Accepted Answer

For 2025, SEP-IRA caps at 25% of net self-employment earnings up to $70,000 (no catch-up; SEP-IRAs don't have a §401(k) employee deferral component). The 25% applies to net self-employment earnings (post-SE-tax adjustment), so on $100K of net SE income the actual deductible cap works out to ~20% of gross SE income because the 25%-of-net = 20%-of-gross relationship. For employers with employees, SEP contributions must be made for all eligible employees at the same percentage rate.

Question 3

Why does Solo 401(k) usually win for self-employed earning under ~$300K?

Accepted Answer

Because the employee deferral portion ($23,500) is a flat amount that doesn't scale with income. On $80K of net SE income, the SEP-IRA limit is ~$16K (20% of gross), while the Solo 401(k) lets you contribute ~$23,500 employee + ~$16K employer = ~$39,500. The Solo 401(k) advantage shrinks as income climbs because both products eventually cap at the same $70,000 §415(c) limit.

Question 4

When does SEP-IRA win?

Accepted Answer

Three scenarios. (1) High-income solo operators ($300K+ net SE income) where both plans cap at $70,000 — SEP-IRA wins on administrative simplicity (no annual Form 5500-EZ filing required for SEP). (2) Operators who want to backdate the contribution — SEP-IRA can be opened and funded as late as the tax-filing deadline + extensions; Solo 401(k) plans require the plan document to be in place by 12/31 of the contribution year. (3) Operators with W-2 income from another employer who max out THAT 401(k) — Solo 401(k)'s employee deferral stacks across plans (capped at $23,500 ALL plans combined per §402(g)), while SEP-IRA contributions are independent of the W-2 401(k) cap.

Question 5

Can I contribute to both a Solo 401(k) and a SEP-IRA?

Accepted Answer

Technically yes, but the §415(c) total cap of $70,000 applies across both plans. So you can't combine them to get a higher limit. Most operators pick one or the other. The exception: a SEP-IRA at a former employer (not your own self-employment) doesn't count against your Solo 401(k) limit because it's a separate employer plan.

Question 6

What's the difference between Roth and Traditional Solo 401(k)?

Accepted Answer

Traditional Solo 401(k) contributions are pre-tax (deductible now, taxed in retirement). Roth Solo 401(k) contributions are post-tax (no deduction now, but tax-free in retirement, including all growth). The employer-side portion of Solo 401(k) MUST be Traditional (no Roth allowed for employer contributions per IRC §401(k)). Most operators split: Roth on the employee deferral, Traditional on the employer side. SEP-IRAs are Traditional-only by default (Roth SEPs were authorized by SECURE 2.0 but custodian adoption is incomplete as of 2026).

Question 7

What's the deadline to set up a Solo 401(k) for the current tax year?

Accepted Answer

12/31 of the tax year for the plan document to be established (some custodians extended this to the tax-filing deadline post-SECURE 2.0 for solo plans). Contributions can be made up to the tax-filing deadline + extensions (10/15 with extension). SEP-IRA: both plan setup AND contributions can happen up to the tax-filing deadline + extensions — that's the SEP-IRA's flexibility advantage.

Question 8

Are these contributions tax-deductible?

Accepted Answer

Traditional Solo 401(k) and SEP-IRA contributions reduce your self-employment net income and federal taxable income (line 16 on Schedule 1). They DO NOT reduce self-employment tax (the SE tax is calculated on net Schedule C income BEFORE retirement contributions). Roth Solo 401(k) contributions are not deductible (you pay tax on the income now but the growth + qualified withdrawals are tax-free).

Solo 401(k) vs SEP-IRA Contribution Comparator

Inputs coming in next batch

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