Solo 401(k) vs SEP-IRA: The 2026 Freelancer Retirement Guide
If you freelance and you are saving for retirement on your own, the choice usually narrows to two accounts: the SEP-IRA and the solo 401(k). Both shelter far more income than a regular IRA, but they are not interchangeable. Here is how the 2026 IRS limits change the math, and which plan fits which freelancer.
The Delivvo team· May 22, 2026 9 min read
When you freelance, nobody sets up a retirement plan for you. There is no employer match, no default enrolment, no HR team that quietly moves money into an account every payday. If you are going to retire, you are the one who has to build the account — and the first real decision is which account.
For most freelancers, that decision comes down to two: the SEP-IRA and the solo 401(k). Both let a self-employed person shelter far more income than the $7,500 a regular IRA allows in 2026. They are not interchangeable, and for most freelancers one of them is clearly better.
The short version: if it is just you — or you and a spouse — and you want to put away as much as you can, the solo 401(k) almost always wins. If you value the simplest possible paperwork and you are not chasing the maximum, the SEP-IRA is the easier life. The 2026 limits make the gap worth understanding before you open either one.
What the two plans actually are
A SEP-IRA is a Simplified Employee Pension. It is funded entirely by the employer — and when you freelance, you *are* the employer. You contribute a percentage of your net self-employment income, and that is the only contribution channel the plan has.
A solo 401(k), which the IRS calls a one-participant 401(k), is a 401(k) plan for a business whose only employees are the owner and, if applicable, a spouse. The structural difference that drives everything else is this: a solo 401(k) lets you contribute in two capacities — as the "employee" *and* as the "employer" — while a SEP-IRA only allows the employer contribution (IRS, One-Participant 401(k) Plans).
That single difference is why a solo 401(k) usually shelters roughly twice as much money at a typical freelance income. Hold that thought.
What changed for 2026
Keep reading
The IRS raised the limits again. For 2026, the 401(k) employee deferral limit rose to $24,500, up from $23,500 in 2025, and the regular IRA limit rose to $7,500 (IRS, 401(k) limit increases to $24,500 for 2026).
The catch-up contributions matter too. If you are 50 or older, you can add $8,000 on top of the employee deferral. And there is now a larger "super catch-up" for ages 60 to 63 of $11,250, if your plan allows it (IRS).
For the overall ceiling, the total that can go into a defined-contribution plan — which is what caps both a SEP-IRA and a solo 401(k) — is $72,000 for 2026, and the SEP-IRA is limited to 25 percent of compensation up to that figure (Fidelity, SEP IRA contribution limits). The compensation that can be counted toward retirement contributions is itself capped, at $360,000 for 2026 (Fidelity, Solo 401(k) contribution limits).
A freelancer reviewing finances with a notebook, calculator, and laptop at a clean desk
The solo 401(k): the higher ceiling
Here is how the two-capacity structure plays out. As the "employee," you can defer up to $24,500 of your income into a solo 401(k) in 2026. Then, as the "employer," you can make a profit-sharing contribution on top — up to 25 percent of compensation, which for a self-employed person works out to roughly 20 percent of net self-employment income after the self-employment-tax adjustment. The two together can climb toward the $72,000 cap, and higher still with catch-up contributions (IRS, retirement topics — contributions).
Put a number on it. A freelancer with $120,000 of net self-employment income could defer the full $24,500 as the employee, then add roughly $24,000 as the employer — sheltering close to $48,500. A SEP-IRA at the same income only has the employer channel: about 20 percent of net income, or roughly $24,000. At a middle-class freelance income, the solo 401(k) shelters about twice as much, because the employee deferral is a flat amount that does not depend on a percentage of anything.
The solo 401(k) has two more advantages. It usually offers a Roth option, so you can choose to contribute after-tax money and withdraw it tax-free in retirement. And it carries the catch-up contributions — the SEP-IRA has none.
The cost of all that is paperwork. A solo 401(k) takes a little more to set up, and once the plan's assets exceed $250,000 you must file a short annual return, Form 5500-EZ, with the IRS. For most freelancers that is a once-a-year, one-page chore, not a reason to avoid the plan.
The SEP-IRA: the simpler option
The SEP-IRA's whole appeal is that it is easy. You can open one in minutes at any major brokerage, there is no annual 5500 filing regardless of how large it grows, and you can establish *and* fund it right up to your tax-filing deadline, including extensions. For a freelancer who wants to deal with retirement once a year, in one number, the SEP-IRA removes nearly all the friction.
The limitation is the one already described: it only has the employer contribution. You can put in up to 25 percent of compensation — effectively about 20 percent of net self-employment income — to a maximum of $72,000 for 2026, and that is it. No employee deferral, no catch-up. At a modest income, that ceiling is meaningfully lower than what a solo 401(k) reaches.
There is one more catch worth knowing. If you ever hire employees, a SEP-IRA generally requires you to contribute the *same percentage* of pay for them as you do for yourself — which can get expensive fast. A solo 401(k), by definition, cannot cover non-spouse employees, so it sidesteps that question entirely. If you expect to stay solo, neither matters; if you might build a team, factor it in.
A worked example at two incomes
Numbers make the choice concrete, so here are two freelancers, both under 50, both contributing the maximum each plan allows for 2026.
The first nets $80,000 of self-employment income. In a SEP-IRA, the employer contribution is roughly 20 percent of net income after the self-employment-tax adjustment — call it about $14,900. In a solo 401(k), the same freelancer makes that same employer contribution of about $14,900, *and* defers up to $24,500 as the employee. Total sheltered: roughly $39,400 — well over twice the SEP-IRA figure. At a middle-income freelance level, the gap is not subtle.
The second freelancer nets $320,000. Here the picture changes. Twenty percent of that income already pushes the SEP-IRA close to the $72,000 defined-contribution ceiling on its own. The solo 401(k) reaches the same $72,000 cap — the employee deferral simply means hitting it without needing the full employer slice. At high income the two plans converge on an identical number, which is exactly why the SEP-IRA's simplicity becomes the deciding factor up there.
The lesson the two examples teach is the same: the solo 401(k)'s flat employee deferral is what separates the plans at ordinary freelance incomes, and it stops mattering only once your income is high enough to fill the ceiling on the employer contribution alone.
How to actually choose
Strip away the detail and the decision is fairly clean:
Choose the solo 401(k) if you want to save as much as possible at a typical freelance income, you want a Roth bucket, or you are 50 or older and contributing hard. The flat employee deferral does the heavy lifting that a percentage-only SEP cannot match.
Choose the SEP-IRA if you genuinely dislike paperwork and you are a modest saver, or your net income is high enough — very roughly $300,000 and up — that 20 percent alone already reaches the $72,000 cap. At that point the two plans converge on the same number, and the SEP's simplicity wins.
One timing rule is easy to miss and can cost you a year. A solo 401(k) generally must be *established* by December 31 of the tax year you want it to count for, even though the employer portion can be funded later. A SEP-IRA can be opened the following spring and still count for the prior year. If you are reading this in, say, March and want a deduction for last year, the SEP-IRA may be your only option this time around.
Whichever you pick, the contributions reduce your taxable income, so they belong in the same conversation as the rest of your tax planning — the 2026 freelance tax guide is worth reading alongside this, and the bookkeeping that tells you your real net income is covered in the roundup of QuickBooks Self-Employed replacements. Retirement saving is one more line item in a self-employed budget that also has to carry health insurance.
Where and how to open one
Both accounts are opened at a brokerage, and the major low-cost providers — the same names freelancers already use for ordinary investing — all offer them. The mechanics differ slightly. A SEP-IRA is close to instant: complete a short application, and you can fund it for the prior tax year right up to your filing deadline. A solo 401(k) involves adopting a plan document, which the brokerage provides, and that is the step that carries the December 31 establishment deadline.
Two practical points are easy to miss. First, if your spouse genuinely works in your freelance business, a solo 401(k) can cover them too, effectively doubling the household's sheltered contributions — a real advantage for couples who run a practice together. Second, you can hold a solo 401(k) or SEP-IRA *and* still contribute to a regular or Roth IRA in the same year, subject to the IRA's own income rules; the plans stack rather than cancelling each other out.
When you compare providers, look past the headline "no fees" and check two things: whether the solo 401(k) plan document allows the Roth option and the age 60-63 super catch-up, since not every provider's plan does, and whether there are fees on the specific funds you intend to hold. The account being free is not the same as the investing inside it being free.
Delivvo gives freelancers a branded client portal where invoices are sent, paid through your own gateway, and recorded in one place — so when it is time to size a SEP-IRA or solo 401(k) contribution, your real net income is a number you can read off, not one you have to reconstruct. See how it works →
The takeaway
The SEP-IRA and the solo 401(k) both solve the same problem: a freelancer with no employer plan and a lot of income that should not all be taxed today. The difference is the employee deferral. The solo 401(k) has it; the SEP-IRA does not — and that flat $24,500 is why the solo 401(k) shelters about twice as much at a normal freelance income.
If you are an organised saver who wants the maximum, open a solo 401(k) before the year ends. If you want the least possible paperwork and you are not chasing the ceiling, the SEP-IRA is a perfectly good account. The wrong choice is the third one: opening neither, and letting another tax year pass with nothing set aside.
