The IRS has confirmed that self-employed workers can shelter up to $72,000 in tax-advantaged retirement contributions for 2026 — a meaningful jump that puts solo entrepreneurs, freelancers, and small-business owners on more equal footing with employees of large firms. But capturing that full ceiling depends on which account you choose, and the answer is not obvious.
The 2026 Numbers
For 2026, both the SEP IRA and Solo 401(k) share a $72,000 overall contribution cap, but they get there differently:
- SEP IRA: Funded exclusively by employer contributions of up to 25% of compensation, capped at $72,000. Self-employed savers calculating from net income are typically limited to about 20% after the deduction adjustment.
- Solo 401(k): Combines an employee salary deferral of up to $24,500 with an employer profit-sharing contribution of up to 25% of compensation, also capped at a $72,000 total for those under 50.
The difference matters most at lower income levels. A self-employed consultant earning $100,000 in net income could contribute roughly $20,000 to a SEP IRA, but the same consultant could contribute the $24,500 employee deferral plus a 25% employer share to a Solo 401(k) — reaching meaningfully higher savings on identical earnings.
Catch-Ups Favor the Solo 401(k)
For savers 50 and older, the gap widens. SEP IRAs do not permit catch-up contributions of any kind. Solo 401(k) plans, by contrast, allow:
- An $8,000 standard catch-up for those 50 and older, and
- An enhanced "super catch-up" of $11,250 for participants ages 60 through 63 — a SECURE 2.0 provision designed to help workers in their final earning years accelerate retirement savings.
That brings the Solo 401(k) ceiling to $80,000 for most savers 50+ and as high as $83,250 for the 60-to-63 cohort, assuming the plan document allows it.
A Key 2026 Rule Change
Beginning in 2026, plan participants whose prior-year FICA wages exceeded $145,000 must make their catch-up contributions on a Roth (after-tax) basis. Solo 401(k) plans can accommodate this if the plan document includes a Roth feature; SEP IRAs cannot, since they do not accept employee contributions of any kind. High-earning self-employed savers who want to keep making catch-up contributions essentially need a Roth-capable Solo 401(k).
Other Practical Differences
Solo 401(k)s allow participant loans of up to 50% of the balance (capped at $50,000) and can be funded with both pretax and Roth dollars. SEP IRAs offer neither feature, but they win on simplicity: setup is faster, plan documents are minimal, and there is no annual Form 5500 filing until balances exceed $250,000.
Practical Takeaways
- If you are over 50, expect to save aggressively, or want Roth flexibility, the Solo 401(k) is usually the better vehicle.
- If your business income is modest and you value administrative simplicity over the highest possible contribution, the SEP IRA may be sufficient.
- Either way, contributions for the 2026 tax year can generally be made up until your federal tax filing deadline in April 2027 — but Solo 401(k) plans must be established by December 31, 2026, to allow employee deferrals for the year.
- Pair tax-deferred savings with diversified asset exposure. A growing share of retirement-focused investors are using self-directed IRAs to add precious metals or other alternatives to their long-term mix.
Sources: IRS Notice 2025-67, Fidelity, IRS.gov, The Motley Fool, IRA Financial, Employee Fiduciary