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Solo 401(k) vs SEP-IRA: the deferral layer decides it
The short answer
Both give the self-employed an employer contribution of ~20–25% of compensation. The Solo 401(k) adds an employee deferral layer ($24,500 in 2026) on top — so at the same income it almost always shelters more, offers Roth, and does not poison the backdoor Roth pro-rata math. The SEP wins on simplicity and deadline flexibility: open and fund it as late as your extended filing date.
Same consultant, $100,000 net SE income (2026)
How to choose
- Filing in April for last year with nothing open? SEP — it is the only one you can still create.
- Planning ahead at all? Solo 401(k) — more room, Roth, loans, backdoor-friendly.
- High saver? Solo 401(k) with the mega-backdoor feature designed in.
- Employees coming? Both change character — plan before the first hire.
Frequently asked questions
Which allows bigger contributions?
At the same compensation, the Solo 401(k) — its employee deferral layer ($24,500 in 2026) stacks on top of the same employer percentage the SEP offers. The SEP has no deferral layer.
When does the SEP still win?
Simplicity and deadlines: a SEP can be opened and funded up to your filing deadline with extensions, with minimal paperwork. It also avoids the Form 5500 filing that Solo 401(k)s require once assets pass the threshold.
Can I have a Roth option?
Solo 401(k)s can include Roth deferrals (and, with the right document, mega-backdoor after-tax contributions). SEP Roth contributions exist in law post-SECURE 2.0 but provider support remains limited.
Does a SEP break my backdoor Roth?
It can — SEP balances count in the pro-rata calculation. Solo 401(k) balances do not, which is one more quiet reason high earners favor the 401(k).
Want it opened right?
We pick the vehicle, the document features, and the contribution schedule as one decision — coordinated with your S-corp salary if you have one.
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