Why 20% instead of 25%?

For self-employed, the 25% employer contribution translates to about 20% of net earnings after the IRS adjustments. This tool uses 20% as a simplification.

Does this include Roth contributions?

Roth is possible for the employee deferral in many Solo 401k plans. This tool only shows total dollar limits, not pre-tax vs Roth split.

What if I have a W-2 job with a 401k?

Employee deferral limits are shared across all 401k plans. SEP contributions are separate. Adjust deferrals if you already contributed via W-2.

Do I have to include employees?

SEP requires the same percentage contribution for eligible employees. Solo 401k is intended for owner-only businesses. This tool assumes no employees.

Are plan setup and funding deadlines modeled?

No. Solo 401k setup deadlines can differ from SEP establishment/funding timelines. Check current-year rules with your custodian.

Can I contribute after the year ends?

Employer contributions are often allowed up to the tax-filing deadline (with extensions). Employee deferrals generally must be elected/paid within the plan year. This tool does not track timing rules.

What about S-corp reasonable comp rules?

This tool uses net income as a stand-in. S-corp wages vs distributions can change the base for contributions. Consult your tax pro for entity-specific calculations.

Can I roll old SEP funds into a Solo 401k?

Often yes, custodians allow rolling SEP assets into a Solo 401k. This tool focuses on current-year contribution limits, not rollovers; check your custodian’s rules.

finance calculator

Solo 401k vs SEP IRA

Compare maximum contributions for a self-employed person under a Solo 401k (employee + employer) versus a SEP IRA.

Results

Solo 401k employee deferral: $23,000
Solo 401k employer contribution: $24,000
Solo 401k total contribution: $47,000
SEP IRA contribution: $24,000
Catch-up eligible (age 50+): 0.00

How to use this calculator

Enter your net self-employment income (after expenses).
Enter your age to determine catch-up eligibility for the Solo 401k deferral.
Review Solo 401k employee deferral, employer contribution, and total vs the SEP IRA contribution.
Try different income levels to see where the SEP begins to lag vs a Solo 401k.
Remember: if you hire employees, SEP requires contributions for them too; this tool assumes no employees.

Inputs explained

Net self-employment income: Business profit before retirement contributions (simplified input for this model).
Age: Determines catch-up eligibility for Solo 401k elective deferrals at age 50+.

How it works

Employee deferral (Solo 401k) uses the annual elective deferral limit, plus catch-up if age 50+.

Employer contribution (Solo 401k) is modeled as 20% of net self-employment income to approximate the IRS self-employed formula.

SEP IRA contribution uses the same 20% of net income assumption (the self-employed equivalent of 25% of comp).

Solo 401k total = employee deferral + employer portion, subject to overall annual plan limits.

Formula

Solo 401k employee deferral = min(annual deferral limit (+ catch-up if 50+), net income). Employer portion ≈ 20% of net income (self-employed equivalent of 25% of comp). Solo 401k total = deferral + employer portion, capped by the annual overall limit. SEP IRA contribution ≈ 20% of net income.

When to use it

Deciding between opening a Solo 401k or a SEP IRA for a single-member LLC or sole proprietorship.
Maximizing tax-deferred savings in a high-income freelance year.
Seeing how catch-up contributions at 50+ increase Solo 401k headroom vs SEP.
Planning contributions when income fluctuates; Solo 401k often wins at lower incomes because of the deferral.
Understanding the employer-contribution math before filing taxes or running year-end payroll.
Coordinating retirement savings when you and a spouse both have self-employment income and separate plans.
Evaluating plan type before forming an S-corp vs staying sole prop, since compensation definitions can change the math.

Tips & cautions

Solo 401k usually wins at lower incomes because you get the employee deferral on top of the 20% employer piece.
Catch-up ($7,500 for age 50+) is only available in the Solo 401k deferral, not SEP.
SEP contributions are simpler administratively but can get costly if you have employees (you must contribute for eligible staff).
If you also have a W-2 job with a 401k, the employee deferral limit is shared across both; adjust your deferral expectations accordingly.
Confirm IRS annual dollar caps (deferral and overall) for the current year; update defaults as limits change.
Net earnings for IRS purposes deduct half of SE tax and deferrals; this tool uses a simplified 20% estimate for speed.
Solo 401k can allow Roth deferrals; SEP is traditional-only.
If cash flow is tight, you can still make employer contributions by the tax-filing deadline (plus extensions); plan for timing.
Check custodian paperwork: Solo 401k establishment deadlines differ from SEP setup/funding deadlines.
Simplified self-employed compensation calc; IRS uses net earnings minus half SE tax and deferrals.
Does not enforce overall annual plan caps; defaults reflect typical deferral limits but should be updated as laws change.
Assumes no common-law employees; SEP rules require contributions for eligible employees.
Does not address controlled group, top-heavy, or coverage testing that may apply in larger businesses.
Assumes calendar-year timing and no W-2 deferrals elsewhere; coordination with other plans is up to the user.

Worked examples

Mid-income, under 50

Net income $120,000, Age 35.
Solo 401k: employee deferral $23,000; employer ≈ $24,000 (20% of 120k). Total ≈ $47,000 (subject to annual cap).
SEP IRA: ≈ $24,000. Solo 401k clearly allows more.

Lower income freelancer

Net income $60,000, Age 40.
Solo 401k: deferral $23,000; employer ≈ $12,000. Total ≈ $35,000 (subject to cap).
SEP IRA: ≈ $12,000. Solo 401k provides far higher space at modest income.

Age 50+ with catch-up

Net income $180,000, Age 52.
Solo 401k: deferral $23,000 + $7,500 catch-up = $30,500; employer ≈ $36,000. Total ≈ $66,500 (check annual overall limit).
SEP IRA: ≈ $36,000. Catch-up makes Solo 401k more powerful.

High income hitting plan caps

Net income $400,000, Age 45.
Solo 401k: deferral $23,000; employer 20% = $80,000, but overall plan limit caps the total (update annually per IRS).
SEP IRA: 20% = $80,000, also capped by the same annual overall limit. At high income, both converge to the cap.

Coordinating with a day job 401k

Net SE income $90,000, Age 38. W-2 job already deferred $15,000 to a 401k.
Solo 401k deferral remaining = $23,000 − $15,000 = $8,000. Employer ≈ $18,000.
Total Solo 401k ≈ $26,000. SEP ≈ $18,000. Shared deferral limit reduces the Solo advantage but it still leads.

Deep dive

Use this Solo 401k vs SEP IRA calculator to compare maximum self-employed retirement contributions.

Enter net business income and age to see Solo 401k employee deferral, employer contribution, and total versus SEP IRA.

Model catch-up contributions at age 50+ and see how they boost Solo 401k space compared to SEP.

Test different income levels to find where SEP contributions converge with annual plan caps.

Plan year-end contributions for taxes and cash flow by understanding which plan yields the bigger deduction.

Coordinate with a day job 401k by seeing how shared deferral limits change your Solo 401k headroom.

Decide if simplicity (SEP) or maximum space (Solo 401k) better fits your business and cash-flow timing.

Share scenarios with your CPA to lock in deferrals before year-end and make employer contributions by the filing deadline.

FAQs

Why 20% instead of 25%?: For self-employed, the 25% employer contribution translates to about 20% of net earnings after the IRS adjustments. This tool uses 20% as a simplification.
Does this include Roth contributions?: Roth is possible for the employee deferral in many Solo 401k plans. This tool only shows total dollar limits, not pre-tax vs Roth split.
What if I have a W-2 job with a 401k?: Employee deferral limits are shared across all 401k plans. SEP contributions are separate. Adjust deferrals if you already contributed via W-2.
Do I have to include employees?: SEP requires the same percentage contribution for eligible employees. Solo 401k is intended for owner-only businesses. This tool assumes no employees.
Are plan setup and funding deadlines modeled?: No. Solo 401k setup deadlines can differ from SEP establishment/funding timelines. Check current-year rules with your custodian.
Can I contribute after the year ends?: Employer contributions are often allowed up to the tax-filing deadline (with extensions). Employee deferrals generally must be elected/paid within the plan year. This tool does not track timing rules.
What about S-corp reasonable comp rules?: This tool uses net income as a stand-in. S-corp wages vs distributions can change the base for contributions. Consult your tax pro for entity-specific calculations.
Can I roll old SEP funds into a Solo 401k?: Often yes, custodians allow rolling SEP assets into a Solo 401k. This tool focuses on current-year contribution limits, not rollovers; check your custodian’s rules.

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Simplified self-employed contribution estimator. Does not enforce exact IRS formulas, overall annual limits, or shared deferral limits across multiple jobs/plans. Assumes no employees and calendar-year timing. Confirm contributions and eligibility with your tax advisor and plan custodian before filing.