When you freelance, nobody sets up a retirement plan for you. No employer match, no HR department, no automatic payroll deduction. You have to build it yourself, and two of the most popular options for self-employed people are the SEP IRA and the Solo 401(k).
Both let you save far more than a regular IRA. Both give you a tax break. But they work differently, and the right choice can mean thousands of dollars more in your retirement account each year. This guide compares them side by side so you can decide with confidence.
The Short Answer
- Choose a SEP IRA if you want the simplest setup and minimal paperwork, and your income is high enough that the employer-style contribution alone lets you save what you want.
- Choose a Solo 401(k) if you want to save the most possible at lower or moderate income, or if you want a Roth option.
For most freelancers earning under about $150,000 in net profit, the Solo 401(k) allows a higher contribution. Below, you’ll see why.
What Is a SEP IRA?
A SEP IRA (Simplified Employee Pension) is a retirement account for self-employed people and small business owners. As a freelancer, you contribute to it as the «employer,» and the contribution is generally tax-deductible.
Key features:
- Contribution limit for 2026: the lesser of 25% of compensation or $72,000. For sole proprietors and single-member LLCs, the math works out to roughly 20% of your net self-employment earnings (after deducting half of your self-employment tax).
- Pre-tax contributions: you deduct contributions now and pay income tax on withdrawals in retirement.
- Easy to open: most brokerages offer one for free, with little paperwork.
- Flexible: you can skip a year if income is low, with no penalty.
- No age 50+ catch-up contributions.
- Deadline: you can generally fund it up to your tax filing deadline, including extensions.
Watch out: if you ever hire employees, you generally must contribute the same percentage of pay for eligible employees as you do for yourself. That can get expensive.
What Is a Solo 401(k)?
A Solo 401(k) (also called an individual 401(k) or Uni-K) is a 401(k) designed for a business owner with no employees other than a spouse. You wear two hats: the employee and the employer, and you can contribute as both.
Key features for 2026:
- Employee deferral: up to $24,500.
- Catch-up contributions: an extra $8,000 if you’re 50 or older, or $11,250 if you’re 60 to 63.
- Employer contribution: on top of your deferral, roughly 20% of net self-employment earnings for sole proprietors.
- Total limit: $72,000 (not counting catch-up contributions).
- Roth option: many providers let you make your employee deferrals as Roth (after-tax) contributions, so withdrawals in retirement can be tax-free if you meet the rules.
- Loans: some plans allow you to borrow from your balance.
Watch out: a Solo 401(k) has more paperwork. You generally need to set up the plan by December 31 to make employee deferrals for that year, and if your plan assets pass $250,000, you must file an annual Form 5500-EZ with the IRS. Recent rule changes gave some sole proprietors extra flexibility on timing, so confirm the details with your provider.
SEP IRA vs. Solo 401(k): Side-by-Side Comparison
| Feature | SEP IRA | Solo 401(k) |
|---|---|---|
| 2026 max contribution | $72,000 | $72,000 (plus catch-up if 50+) |
| Contribution type | Employer only | Employee + employer |
| Catch-up (age 50+) | No | Yes |
| Roth option | Generally no | Yes, with many providers |
| Can hire employees | Yes, but you must cover them | No (except a spouse) |
| Setup difficulty | Very easy | Moderate |
| Annual IRS filing | None | Form 5500-EZ once assets exceed $250,000 |
| Loans | No | Possible, depending on the plan |
| Best for | Simplicity, higher earners | Maximizing savings at any income level |
A Real Example: $60,000 in Net Profit
Let’s say you’re a freelance designer with $60,000 in net profit after business expenses. These figures are approximate and rounded, and your actual numbers depend on your tax situation.
- Self-employment tax is about $8,500. Half of it, about $4,250, is deductible.
- Your eligible compensation for the plan is roughly $55,750.
- Employer-style contribution at about 20%: ≈ $11,150.
With a SEP IRA: you can save about $11,150.
With a Solo 401(k): you can contribute the same employer portion (≈ $11,150) plus up to $24,500 as an employee deferral, for about $35,650 total.
That’s more than three times as much, from the same income. This is the main reason the Solo 401(k) usually wins for freelancers at moderate income levels.
When a SEP IRA Is the Better Choice
- You value simplicity above everything else.
- You already have high net profit and can reach your savings goal with the employer contribution alone.
- You have irregular income and want a plan with no annual filing requirements.
- You are opening an account late, close to the tax deadline, and need a quick way to make a prior-year contribution.
- You might hire employees in the future and prefer a plan that accommodates them (keeping in mind the contribution rules).
When a Solo 401(k) Is the Better Choice
- You want to save more than the SEP allows at your income level.
- You’re 50 or older and want catch-up contributions.
- You prefer Roth contributions, for example because you expect higher taxes later.
- You have no employees and don’t plan to hire any.
- You might want the option to borrow from your account.
Can You Have Both?
Generally, contributing to a SEP IRA and a Solo 401(k) for the same business means your combined employer contributions must stay within the overall $72,000 limit, and this gets complicated quickly. Most freelancers pick one. If you want a second tax-advantaged account, a personal Traditional or Roth IRA ($7,500 in 2026, or $8,600 if you’re 50+) is a separate limit that can sit alongside either plan. Roth IRA eligibility is limited by income, so check the current thresholds before contributing.
How to Choose in 3 Steps
- Estimate your net profit for the year, after expenses.
- Decide how much you want to save. If it’s more than about 20% of your net profit, a Solo 401(k) is likely the better fit.
- Check your comfort with paperwork. If a few extra forms don’t bother you, the Solo 401(k) offers more flexibility. If they do, a SEP IRA is a perfectly good plan.
Whichever you choose, saving something consistently matters more than picking the perfect account. Even a small automatic contribution after each client payment adds up over decades.
Frequently Asked Questions
Is a SEP IRA or Solo 401(k) better if my income is irregular?
Both allow you to skip or reduce contributions in a slow year. A SEP IRA is simpler to manage. A Solo 401(k) lets you decide how much to contribute after you see your annual profit, within its deadlines.
Do I need an LLC to open either account?
No. Sole proprietors with a 1099 side business or freelance income can open both accounts. Your income must come from self-employment.
What if I also have a W-2 job with a 401(k)?
The employee deferral limit ($24,500 in 2026) applies across all your 401(k) plans, but the employer contribution for your side business is separate. A Solo 401(k) can still be useful, though the rules are more complicated. A tax professional can help.
Are contributions really tax-deductible?
SEP contributions and pre-tax Solo 401(k) contributions can reduce your taxable income. Roth Solo 401(k) contributions are made with after-tax money and are not deductible.
Where can I open one?
Major brokerages and some specialist providers offer these accounts. Compare fees, investment choices and whether the provider supports Roth deferrals before you open one.
Final Thoughts
For most freelancers, the Solo 401(k) is the more powerful tool because it lets you save more, adds a Roth option and offers catch-up contributions. The SEP IRA wins on simplicity and is a solid choice if you want to set it up in minutes and keep things easy.
Take a look at your income, your savings goals and your tolerance for paperwork, then choose the plan you’ll actually stick with.
Contribution limits are from IRS guidance for 2026 and change most years. Always confirm current figures on IRS.gov before contributing.
Disclaimer: This article is for educational purposes only and is not personalized financial, tax or legal advice. Consult a qualified tax professional or financial advisor about your own situation.
Last updated: September 29, 2026