Why does a Solo 401(k) allow higher contributions than a SEP IRA at lower income levels?

A Solo 401(k) allows you to contribute in two capacities: as an employee (up to $23,500 dollar-for-dollar) AND as an employer (20% to 25% profit share). A SEP IRA only allows employer contributions (20% to 25%), requiring much higher net income to maximize.

Can I have full-time employees and still use a Solo 401(k)?

No. Solo 401(k) plans (also known as Individual 401k) are strictly for business owners with no common-law full-time employees other than a spouse.

USAUpdated for 2026retirement

Solo 401(k) vs SEP IRA Contribution Limits Calculator 2026

Calculate maximum statutory tax-deductible retirement contributions for self-employed individuals and business owners under Solo 401(k) and SEP IRA limits ($70,000 baseline / $77,500 with age 50+ catch-up).

Retirement & Pensions Taxes & Duties Investment & Assets Salaries & Monthly Wages

Calculated Result

Max Solo 401(k) Contribution

$45,804.45

Calculator Inputs

Net Self-Employment Profit / Schedule C Income

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Are You Age 50 or Older (Eligible for $7,500 Catch-Up)?

Max Solo 401(k) Contribution

$45,804.45

Max SEP IRA Contribution

$22,304.45

Solo 401(k) Contribution Advantage

$23,500

Solo 401(k) Employee Salary Deferral

$23,500

Solo 401(k) Employer 20% Profit Sharing

$22,304.45

Estimated Tax Savings From Deduction

$14,657.42

Self-employed sole proprietors calculate employer contributions at 20% of net adjusted self-employment income (Net Schedule C minus one-half SE tax). S-Corp owners calculate employer profit sharing at up to 25% of W-2 wage compensation.

Official Statute: Internal Revenue Code (26 U.S.C. § 404 & § 415(c) - Defined Contribution Plan Annual Additions Limits)Last Verified: 2026-09-04

Calculation Methodology

Net SE Adjusted Earnings = Net Profit - (Net Profit * 0.9235 * 0.153 * 0.5). SEP IRA Max = min($70,000, Net SE Adjusted * 20%). Solo 401(k) Employee Deferral = min(Net SE Adjusted, $23,500 + Catch-Up). Solo 401(k) Employer Profit Sharing = min(Net SE Adjusted * 20%, $70,000 - Deferral). Total Solo 401(k) Max = min($70,000 + Catch-Up, Deferral + Employer Profit Sharing).

Frequently Asked Questions

The IRC § 415(c) overall defined contribution limit is $70,000 for 2026. For individuals age 50 and older, Solo 401(k) allows an additional $7,500 employee catch-up contribution, raising the total ceiling to $77,500.

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Solo 401(k) vs SEP IRA Contribution Limits Calculator 2026

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