Solo 401(k) & SEP-IRA Calculator

A salaried employee can defer $24,500 into a 401(k) in 2026, plus whatever the employer chooses to match. A self-employed person can contribute in both capacities — as employee and as employer of their own business — which raises the ceiling to the full $72,000 overall limit, plus catch-up if eligible.

That makes the solo 401(k) one of the most powerful tax shelters available to anyone with self-employment income, and it is routinely underused. Someone with $150,000 of profit can shelter roughly a third of it, cutting their taxable income by that amount in the year of contribution.

Both are simple to open and both allow an employer contribution of the same effective percentage. The decisive difference is that only the solo 401(k) permits an employee deferral on top.

At $60,000 of profit, a SEP-IRA allows roughly $11,000 while a solo 401(k) allows that plus the full $24,500 deferral — more than triple. The gap narrows as income rises, because the percentage-based employer contribution eventually reaches the overall cap on its own, but the 401(k) is at least as good at every level.

The SEP retains two practical advantages: it can be opened and funded up to the tax filing deadline including extensions, which makes it a genuine after-year-end option, and it has no annual filing requirement at all. A solo 401(k) generally has to be established by year end, and once assets exceed $250,000 it requires an annual Form 5500-EZ. For anyone who realises in March that they wanted to contribute for the prior year, the SEP is often the only route still open.

The most common error is applying the percentage to raw business profit. The limit applies to net earnings from self-employment — profit reduced by half of self-employment tax — which is meaningfully smaller. Contributing on the raw figure produces an excess contribution, with penalties and a correction process.

The second confusion is the 20% versus 25% question. Both numbers are correct and they describe the same limit. The statutory figure is 25% of compensation, but for a sole proprietor the contribution itself reduces the compensation it is based on. Solving that circularity gives 20% of pre-contribution net earnings. An S-corp owner has no circularity because W-2 wages are fixed independently of the contribution, so the straightforward 25% applies — which is one reason the S-corp structure can permit a larger contribution at the same profit level, though it has to be weighed against payroll costs.