SEP IRA vs. Solo 401(k): Which Is Better?

Solo 401(k) and SEP IRAs allow small business owners and the self-employed to save up to $69,000 annually for retirement.

Business concept, Businessman confused about two choices.
(Image credit: Getty Images)

It's great being your own boss — until you have to wade through the alphabet soup of SEP IRAs and other retirement plans. Whether you're a full-fledged small-business owner, have a side hustle or receive 1099's as a freelancer or gig worker, there are several smart ways to save for retirement specifically designed for the self-employed. 

Here's a comparison of two popular self-employed retirement savings plans: the solo 401(k) and the SEP IRA. See which option is right for your business and retirement planning needs. 

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SEP IRA vs. Solo 401(k)
SEP IRA- ProsSolo 401(k)- ProsSEP IRA- ConsSolo 401(k)-Cons
Pro: Easy to set up and administerPro: No age or income restrictions, but must be a business owner with no employeesCon No catch-up contribution for savers 50 or olderCon: "No employee" requirement may not be viable as your business grows
Pro: New Roth contributions (optional)Pro: Additional catch-up contribution of $7,500 for those 50 or olderCon Required proportional contributions for each eligible employee if you contribute for yourselfCon: Contributions must be "Substantial and recurring" this means you must make contributions somewhat regularly for the account to remain active
Pro: You don't have to commit to contributing every yearPro: Can contribute in your capacity as an employee and an employer (elected deferral)Con: Elective salary deferrals and catch-up contributions are not permitted in SEP plansRow 2 - Cell 3
Row 3 - Cell 0 Pro: Can add your spouse if they are an employee or part ownerRow 3 - Cell 2 Row 3 - Cell 3

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Donna LeValley
Personal Finance Writer

Donna joined Kiplinger as a personal finance writer in 2023. She spent more than a decade as the contributing editor of J.K.Lasser's Your Income Tax Guide and edited state specific legal treatises at ALM Media. She has shared her expertise as a guest on Bloomberg, CNN, Fox, NPR, CNBC and many other media outlets around the nation.