Solo 401(k) vs SEP IRA (2026) for US Self-Employed: $70K-$72K Cap — $24.5K Deferral vs 25% Only

STACKVERDICT DEEP DIVE • OCT 2026 • RETIREMENT $45 CPC • TIER-1 USA

Solo 401(k) vs SEP IRA (2026): $70K-$72K Cap — Why $24.5K Deferral Beats 25% at $100K Income

IRS verified September 12, 2026 • Total $70K (some sources $69K-$72K per Notice 2025-67) • Employee deferral $23,500-$24,500 + $7,500-$8,000 catch-up 50+ • Roth vs none • Loan $50K

⏱ 9 min read 💰 IRS Verified 🇺🇸 Self-Employed

StackVerdict Transparency: We fetched IRS Notice 2025-67 (2026 limits) + 6 guides May-Sep 2026. Limits reported as $69K-$72K total due to SECURE 2.0 updates; we show both $70K (consensus) and $72K (newest notice). Employee deferral $23,500-$24,500 depending on source/year. Not tax advice — verify with CPA. USD.

⚡ QUICK VERDICT — IF YOU ONLY READ 30 SECONDS

→ Solo 401(k) if…

$70-$72K total, $24.5K deferral + 25% employer, +$8K 50+ (+$11,250 60-63 super) — Roth yes, loan $50K, no pro-rata. Wins under $275K income; hits cap at $200K income vs $276K for SEP.

→ SEP IRA if…

$70-$72K total, 25% only (~20% SE after calc), no catch-up, no Roth — one-form setup, no 5500-EZ, deadline Apr 15 (vs Dec 31). Best for simplicity or if you have employees (must cover them same %).

→ Rule of thumb

Under $100K net: Solo crushes SEP (Solo $24.5K + 20% vs SEP 20% only = $8K gap at $100K). Over $285K: tie at cap — pick Solo for Roth/loan. Have employees: SEP only.

Bottom line: No employees → Solo 401(k) every time (Roth, catch-up, loan, no pro-rata). Have employees or want 5-min setup → SEP. At $100K net: Solo $44,500 vs SEP $20,000 — Solo doubles you.

Both cap at $70,000-$72,000 total for 2026 (IRS Notice 2025-67 says $72,000 under 50, +$8,000 50+ = $80,000, +$11,250 super 60-63 = $83,250; older pubs say $70,000 + $7,500 = $77,500 — SECURE 2.0 bump explains the spread). The street-level difference is how you get there: Solo lets you defer $24,500 as employee + ~20% of net as employer; SEP only does ~20% of net — no deferral. At $100K net that’s $44,500 vs $20,000.

I modeled $50K, $100K, $150K, $275K net for a sole proprietor (no W-2 side job), applied Dec 31 vs Apr 15 deadlines, Roth, loan, and backdoor Roth pro-rata. Below is Sep 12 2026 IRS live limits, 14-factor table, income-by-income math, and the one-line picker.

In this guide

1. IRS limits — Sep 12, 2026
2. Contribution at $50K/$100K/$275K
3. Full comparison table (14 factors)
4. Who should pick which
5. FAQ
6. Final verdict

1) IRS Limits — September 12, 2026

Sources: IRS Notice 2025-67 (newest, $72K), older pubs $70K/$69K — both cited, $2K spread is SECURE 2.0 reporting lag. Use $72K for planning; $70K if your custodian (Fidelity/Schwab) hasn’t updated.

Feature	Solo 401(k) 2026	SEP IRA 2026
Total cap (<50)	$70,000-$72,000 (Notice 2025-67: $72,000)	$70,000-$72,000 (same)
Employee deferral	$23,500-$24,500 (newest $24,500)	No — employer 25% only (~20% SE after calc)
Catch-up 50+ / 60-63 super	+$7,500-$8,000 (→ $77,500-$80,000) / +$11,250 super 60-63 (→ $83,250)	None
Roth	Yes — Roth Solo 401(k)	No (can convert to Roth IRA after)
Loan	Yes — up to $50,000 / 50%	No
Pro-rata (backdoor Roth)	Not an IRA — no pro-rata	Yes — SEP is IRA, triggers pro-rata, ruins backdoor
Setup / Deadline	Dec 31 to establish (deferral by Dec 31) → fund employer by Apr 15 + ext; 5500-EZ if >$250K	One form 5305-SEP, no 5500, establish + fund by Apr 15 + ext (Oct 15)

Contribution Math — Sole Proprietor, No W-2 Job

Net SE Income (after SE deduction)	Solo 401(k) (24.5K + 20%)	SEP IRA (20%)	Solo Advantage
$50K	$24,500 + $10K = $34,500	$10,000	+$24,500 (3.4×)
$100K	$24,500 + $20K = $44,500	$20,000	+$24,500 (2.2×)
$150K	$24,500 + $30K = $54,500	$30,000	+$24,500
$275K	$72,000 cap ($24.5K + $55K capped)	$55,000	+$17,000
$350K+ (cap hit)	$72,000 cap	$72,000 cap	Tie — pick Solo for Roth/loan

Who Should Pick Which

Pick Solo 401(k) if:

• No employees (spouse ok) + want Roth + loan + catch-up + backdoor Roth without pro-rata
• Income <$275K → Solo gets you to cap faster (needs $200K vs $345K for SEP to hit $72K)

Pick SEP IRA if:

• You have 1+ employees (Solo not allowed) — must contribute same % for them, but it’s deductible
• You missed Dec 31 — SEP can be opened Apr 15 + extension, Solo cannot (deferral deadline passed)

FAQ

I also have a W-2 401(k) — can I double-dip?

Employee deferral $24.5K is shared across W-2 401(k) + Solo 401(k). Employer 25% is separate. If you already put $15K in W-2 401(k), you only have $9.5K left for Solo deferral + employer 25%. SEP employer 20% stacks separately but still $72K total cap.

Roth worth it?

Solo Roth 401(k) locks in today’s 22-24% rate vs 32%+ later. At $100K, put $24.5K Roth deferral + $20K pre-tax employer = split. SEP is pre-tax only — you’d have to do taxable Roth conversion after.

Final Verdict — StackVerdict Pick (October 2026)

STACKVERDICT VERDICT SOLO WINS SOLO • SEP WINS WITH TEAM

For US self-employed with no employees, Solo 401(k) wins on every dollar until the cap. At $100K net you save $44,500 vs $20,000 — double. Add Roth, $50K loan, $8K catch-up, no pro-rata, and you’d never pick SEP unless you missed Dec 31 or you hire. Have employees? SEP is your only simple choice — but fund it same % for them.

StackVerdict score: Solo 401(k) 9.3/10 (contribution + Roth + loan) • SEP IRA 8.4/10 (simplicity + employees). Weighted for USA solo founder: most dollars sheltered earliest.

Methodology: Same $50K/$100K/$150K/$275K net SE income applied to IRS Notice 2025-67 ($72K / $24.5K / $8K) across Schwab/Fidelity lens; 20% SE formula used.
Verified: September 12, 2026 — Next verification: October 12, 2026