Most gig workers forget about retirement. No company plan, no automatic paycheck deductions. But you have powerful options designed just for self-employed people: the SEP IRA and the Solo 401(k).
Picking the right one depends on your income, your age, and whether you have employees. The tables below lay it all out, plain and simple.
SEP IRA vs. Solo 401(k): The Big Picture
Both plans let you save way more than a regular IRA. But they work a bit differently. Here is the core comparison.
| Feature | SEP IRA | Solo 401(k) |
|---|---|---|
| Eligibility | Any self-employed person or small business owner | Business owner with no full-time employees (except a spouse) |
| 2025 Max Contribution | Up to 25% of net earnings, max $70,000 | Up to $23,500 employee deferral + 25% employer share, max $70,000 total |
| Catch-up (Age 50+) | None | Extra $7,500 employee deferral |
| Roth Option | No | Yes, Roth contributions allowed |
| Loan Feature | No loans | Yes, borrow up to $50,000 or 50% of balance |
| Administrative Ease | Very simple, minimal paperwork | Moderate; annual Form 5500-EZ required once balance exceeds $250,000 |
| Deadline to Open & Fund | Tax filing deadline (including extensions) | December 31 to open; employee deferrals by 12/31, employer share by tax deadline |
Notice the catch-up rule. If you are over 50, the Solo 401(k) wins big. But if you need something quick with zero paperwork, the SEP IRA shines.
The SEP IRA is a low-maintenance, high-limit plan perfect for steady freelance income.
The Solo 401(k) is your best bet if you want to save aggressively, especially with a lower income or after age 50.
Maya is a 45-year-old rideshare driver earning $90,000 net profit. She opens a SEP IRA and contributes about $18,000. Simple, no forms needed.
If she used a Solo 401(k), she could put away $23,500 as an employee plus $18,000 from the employer side — a total of $41,500. Nearly double.
How Much Can You Really Save?
The math changes with your income. At lower earnings, the Solo 401(k) lets you save a much bigger chunk. See the numbers side by side.
| Net Self-Employment Income | SEP IRA Max Contribution (25%) | Solo 401(k) Max Contribution (Deferral + Employer) |
|---|---|---|
| $30,000 | $5,587 | $23,500 (deferral only, up to 100% of income) |
| $60,000 | $11,175 | $34,675 ($23,500 + $11,175 employer) |
| $100,000 | $18,587 | $43,087 ($23,500 + $19,587 employer) |
| $150,000 | $27,887 | $52,387 ($23,500 + $28,887 employer) |
| $275,000 | $51,088 | $70,000 (capped) |
The Solo 401(k) is a game changer at lower incomes. You can stuff nearly your entire paycheck into the employee part. The SEP only lets you do a percentage.
Ben is a freelance writer making $40,000 a year. With a SEP, he saves about $7,400. With a Solo 401(k), he can save $23,000. That triples his retirement boost, even though money is tight.
Tax Impact: Now or Later?
Both plans cut your taxable income today. But only the Solo 401(k) gives you a Roth option. That means tax-free money later. Here is the breakdown.
| Tax Feature | SEP IRA | Solo 401(k) |
|---|---|---|
| Tax Deduction Now | Yes, contributions are pre-tax | Yes, for traditional contributions |
| Roth (After-Tax) Option | Not available | Available; contributions are not deductible but grow tax-free |
| Early Withdrawal (Before 59½) | 10% penalty plus income tax | 10% penalty plus income tax (loans can bypass this) |
| Required Minimum Distributions (RMDs) | Yes, starting at age 73 | Yes, starting at age 73 (Roth 401(k) also subject to RMDs unless rolled to Roth IRA) |
If your tax rate is low now, paying taxes upfront with a Roth Solo 401(k) makes huge sense. You lock in that low rate forever.
High income now and low income expected later? Take the pre-tax deduction. Low income now and expect to earn more later? Use the Roth option inside the Solo 401(k).
Carlos drives for a delivery app part-time, earning $25,000 a year as a student. He puts $5,000 into a Roth Solo 401(k). He pays almost no tax on it now, and the money grows completely tax-free for 40 years.
Setup Steps and Deadlines
You cannot just open these anytime. The Solo 401(k) must be set up by December 31 of the tax year. The SEP is more forgiving. Plan ahead.
| Action | SEP IRA Deadline | Solo 401(k) Deadline |
|---|---|---|
| Open the Account | Tax filing deadline (April 15, or October 15 with extension) | December 31 of the tax year |
| Employee Deferral Contribution | N/A | December 31 (must elect by year-end) |
| Employer Profit-Sharing Contribution | Tax filing deadline (plus extensions) | Tax filing deadline (plus extensions) |
| Form 5500-EZ Filing | Not required | Required by July 31 if plan assets exceed $250,000 at year-end |
Missing the December 31 deadline for a Solo 401(k) means you lose the entire year. Do not procrastinate on this one. The SEP IRA gives you breathing room.
Jenna, a freelance designer, had a fantastic December. She realized on December 20 she could open a Solo 401(k) and shield $30,000 from taxes. She scrambled, got it done before New Year's, and saved thousands on her tax bill.
Her friend waited until February and could only open a SEP IRA, saving far less.
Key Takeaways
| Key Point | What It Means | Action Item |
|---|---|---|
| Solo 401(k) allows higher early savings | You can contribute nearly 100% of income as an employee, beating the SEP's 25% cap. | If you earn under $100,000 and want to save aggressively, prioritize the Solo 401(k). |
| SEP IRA is simpler | No annual IRS filing for most people and flexible deadlines. | Choose a SEP if you want minimal hassle and forget about it until tax time. |
| Roth is a secret weapon | Only the Solo 401(k) lets you build a tax-free nest egg. | Use the Roth option in low-income years to lock in huge future tax savings. |
| Deadlines are strict for Solo 401(k) | You must open the account by December 31. | Contact a provider in November to ensure your account is ready before the year ends. |
| Catch-up contributions matter | SEP has no extra catch-up for those 50+. | If you are 50 or older, the Solo 401(k) is almost always the superior choice. |