Both can shelter up to $72,000 a year. At most income levels, one of them shelters twice as much as the other — and the deadline rules are opposites.
If you are self-employed with no employees, you have access to retirement accounts that make a workplace 401(k) look small — up to $72,000 of tax-deductible contributions in 2026. The two main vehicles are the SEP-IRA and the Solo 401(k). They are taxed the same way. They are invested the same way. But at most income levels one of them allows dramatically larger contributions, and the deadlines work very differently.
SEP-IRA. An employer-only plan: the business contributes up to 25% of compensation. For the self-employed, the math works out to roughly 20% of net self-employment earnings (profit minus half your SE tax). One contribution, one moving part, nearly zero paperwork. 2026 maximum: $72,000.
Solo 401(k). You wear two hats. As the employee, you defer up to $24,500 (2026) regardless of your profit percentage. As the employer, the business adds the same roughly 20% of net earnings as a SEP. Both pieces together cap at $72,000. If you are 50 or older, a catch-up adds $8,000 on top; ages 60–63 get an enhanced $11,250 catch-up. SEP-IRAs have no catch-up at all.
Take $100,000 of net profit on Schedule C. Net SE earnings after the SE-tax deduction are about $92,900.
SEP-IRA: 20% × $92,900 ≈ $18,600.
Solo 401(k): $24,500 deferral + the same $18,600 employer piece ≈ $43,100.
Same business, same income — the Solo 401(k) shelters more than twice as much. That $24,500 employee deferral is the whole story: it doesn’t depend on a percentage of profit, so it dominates at low and middle incomes. The two plans only converge around $250,000+ of profit, where both hit the $72,000 ceiling anyway.
Below roughly $250k of net profit, the Solo 401(k) allows bigger contributions — usually much bigger. The SEP-IRA wins on simplicity, not size.
A SEP-IRA can be opened and funded as late as your filing deadline, including extensions — you can sit down in March 2027, decide you want a 2026 deduction, and still get one. A Solo 401(k) needs to exist by December 31 for you to make employee deferrals for that year (the employer portion can wait until the filing deadline). Miss year-end and you’ve forfeited the $24,500 piece — which, as shown above, is most of the advantage.
Roth. Solo 401(k)s commonly accept Roth employee deferrals — pay tax now, withdraw tax-free later. Roth SEP contributions technically became legal under SECURE 2.0, but few providers offer them.
Employees. Hire even one eligible employee and the picture changes completely: a SEP must contribute the same percentage for them as for you, and a Solo 401(k) stops being “solo.” A spouse on payroll is the exception — they can participate and effectively double the household limits.
Paperwork. SEP: almost none. Solo 401(k): a plan document at setup and, once plan assets pass $250,000, an annual Form 5500-EZ. Manageable, but it is a real filing with real late penalties.
If you want the biggest deduction and can get the account open by December 31, the Solo 401(k) is usually the right answer. If it is already next March, the SEP-IRA is the one that can still save this year’s taxes — open it, fund it, and consider switching structures before year-end.
Every contribution above is also a state-tax deduction in most states, and none of it touches your ability to fund a personal IRA ($7,500 limit in 2026) on top.
December 31, 2026 — last day to establish a Solo 401(k) for 2026 deferrals. The free tax calendar in the downloads library has every other date that matters.
Foad is a federally licensed Enrolled Agent who writes about tax and bookkeeping for small businesses.