Solo 401k vs SEP IRA Spreadsheet: Self-Employed Comparison

Quick answer. Solo 401k and SEP IRA both shelter self-employment income for retirement, but the math and admin diverge. Solo 401k allows employee deferrals plus employer profit-sharing, which usually produces a higher cap at moderate incomes. SEP IRA is employer-side only and simpler to run. The right fit depends on income level, whether Roth matters, and how much paperwork is acceptable. A side-by-side spreadsheet shows the dollar gap at any income.

Self-employed retirement planning has no default. Nobody enrolls you, picks an investment menu, or sets up payroll deferrals. The choice between Solo 401k and SEP IRA is one of the first forks in the road, and the answer is not the same at $80,000 of net self-employment income as it is at $250,000.

From a distance the two plans look similar: tax-deferred, contribution capacity well above an IRA, simple custody at the major brokerages. Up close, they treat compensation differently, allow different account features, and require different annual paperwork. The Retirement Financial Planning Projections template includes a self-employed contribution comparison sheet; every formula below also works in any spreadsheet.

2026 limits up front

Numbers below come from IRS Notice 2025-67 for plan year 2026. The IRS adjusts most figures yearly for inflation; the structure of the rules stays the same, only the caps move.

*For unincorporated self-employed people, “25% of compensation” effectively becomes about 20% of net self-employment earnings after the half-of-SE-tax adjustment and the contribution itself is backed out. The math section below shows why.

Both plans share the overall cap, but Solo 401k has a second contribution channel (the employee deferral) that SEP IRA does not.

How the Solo 401k is structured

A one-participant 401k is a regular 401k where the only participants are the business owner (and optionally a spouse who works in the business). The IRS treats it as a qualified plan, just without discrimination testing because there are no rank-and-file employees.

The contribution structure has two sides:

• Employee deferral. The owner can defer up to the annual elective deferral limit ($24,500 in 2026) from their own compensation. This applies per person, not per plan - anyone with a day-job 401k counts deferrals across both plans against the same cap.
• Employer profit-sharing. The business can contribute up to 25% of compensation on top of the deferral, subject to the combined cap.

Combined, the two sides top out at $72,000 in 2026 (higher with catch-up).

The structural cost: a written plan document is required, and once plan assets cross $250,000, the plan owes an annual Form 5500-EZ filing. Many Solo 401k holders cross the threshold without realizing the filing obligation kicks in; the penalty for missing it can run into thousands per year.

How the SEP IRA is structured

A Simplified Employee Pension is what it sounds like - the simple option. The IRS describes setup as “easily established by adopting Form 5305-SEP” or a prototype, with no annual filing requirement in most cases.

Mechanically, a SEP IRA is an IRA owned by the participant, into which the employer contributes. For self-employed people, the employer and participant are the same person.

The contribution structure has only one side: employer profit-sharing, up to 25% of compensation, with the same $72,000 cap in 2026. No employee deferral channel. No catch-up provision for older participants. SECURE 2.0 added a Roth SEP option, but provider adoption has been uneven.

The trade for the missing deferral channel is administrative simplicity. No plan document. No Form 5500. No fidelity bond. Setup is roughly the same as opening any IRA.

The contribution-limit math at three income levels

The 25% employer side looks identical on paper but produces different totals at different incomes, because Solo 401k bolts a flat $24,500 deferral on top.

For unincorporated self-employed filers (sole proprietors and single-member LLCs on Schedule C), the contribution formula uses net earnings from self-employment:

Net SE income = Schedule C profit - (one-half of self-employment tax)

The 25% employer contribution is then calculated on net SE income minus the contribution itself, which mathematically reduces to about 20% of net SE income for the employer side. IRS Publication 560 has the worksheet; spreadsheets handle it cleanly.

Example 1: $80,000 net SE income

Solo 401k shelters 2.6x as much. The gap is almost entirely the employee deferral, which SEP IRA does not allow.

Example 2: $150,000 net SE income

The dollar gap stays roughly constant ($24,500-ish) because the deferral piece is flat. The percentage gap narrows as income grows.

Example 3: $250,000 net SE income

At this income, Solo 401k sits about $350 below the $72,000 combined cap; the cap binds at roughly $252,000 of net SE income. SEP IRA is well below either cap. The structural gap holds - $24,500 of additional sheltered income on the Solo 401k side.

Across all three, Solo 401k allows more contribution at every income level, and the dollar gap tracks the employee deferral. SEP IRA closes that gap only when the deferral channel is already used by a day-job 401k.

Roth treatment

One of the cleaner differentiators.

Solo 401k. The employee deferral side can be made as Roth in most plan documents. The employer side is pre-tax (SECURE 2.0 allows Roth employer contributions in theory, but provider adoption has been slow). Solo 401k offers a clear Roth path on at least the $24,500 deferral.

SEP IRA. Historically pre-tax only. SECURE 2.0 added a Roth SEP option in 2023, but most major custodians still do not offer it. In practice, SEP IRA functions as pre-tax unless the custodian explicitly confirms Roth support.

The Roth vs Traditional IRA Spreadsheet walks through the breakeven math; the same logic applies to the deferral side of the Solo 401k decision.

Loans, hardship withdrawals, in-service rollovers

A Solo 401k can include a loan provision. The owner can borrow up to the lesser of $50,000 or 50% of the vested balance, repay over 5 years, and pay interest back to themselves. Not every plan document offers this - support varies by custodian - but the option exists.

A SEP IRA does not allow loans. It is, structurally, an IRA, and IRAs do not permit loans. The closest workaround is the 60-day rollover rule, which is narrow and risky.

Both plans allow rollovers in and out. Solo 401k plans can also be designed to allow in-service rollovers after age 59 1/2, which adds some flexibility without a triggering event.

Administrative burden

SEP IRA is materially less work. Solo 401k needs more attention, particularly at the $250,000 asset threshold where the Form 5500-EZ obligation begins. The filing itself is not complex (one page, plus schedules), but missing it is expensive: the IRS penalty starts at $250 per day, capped at $150,000 per return for late filers. A Delinquent Filer Voluntary Compliance program can reduce the penalty for self-corrected filings.

The admin gap is the price of the higher contribution capacity.

Spouse participation

Both plans allow a spouse who earns from the business to participate. For Solo 401k, the spouse can defer up to the same $24,500 (or $32,500 with the age-50 catch-up) plus receive employer contributions. For SEP IRA, the spouse can receive an employer contribution up to the same 25% cap on their compensation. A two-person spouse arrangement doubles household contribution capacity at the same business income level, and the Solo 401k advantage doubles too, since two $24,500 deferrals stack.

Putting both plans in a spreadsheet

Both contribution paths fit in one sheet with an Inputs block, calculations per plan, and a Comparison Dashboard.

Inputs:

Solo 401k calculations:

Adjusted net SE = B1 - B2
Employer side = MIN(Adjusted net SE * 0.20, B4 - B3)
Employee side = MIN(B3, Adjusted net SE)
Total Solo 401k = MIN(Employer side + Employee side, B4)

SEP IRA calculations:

Adjusted net SE = B1 - B2
Total SEP IRA = MIN(Adjusted net SE * 0.20, B4)

The Dashboard reports both totals, the gap, and the first-year tax deferral at your marginal rate. Adding a spouse column doubles the household totals when both participate.

How the variables map to the math

The variables below change what the contribution formula returns and what the paperwork looks like. The matrix describes what shifts for each variable; the decision sits with the reader (or their CPA, who will know facts the spreadsheet does not).

The Form 5500-EZ threshold is the row most often overlooked. Some Solo 401k owners shift to SEP IRA once their plan assets cross $250,000 to avoid the filing.

Picking a provider

The mainstream brokerages (Fidelity, Schwab, Vanguard, E*TRADE) offer both Solo 401k and SEP IRA accounts. Solo 401k plan documents differ in what features they include - loans, after-tax contributions, mega backdoor Roth - so the differences are not just about expense ratios. Specialist providers offer “self-directed” Solo 401k plans that allow alternative assets (real estate, private notes); these are more expensive and add complexity. The plan document is where the feature set actually lives; a no-fee setup at one custodian and another can differ on what the plan allows.

What the spreadsheet does not cover

The math is clean. A few real-world inputs sit outside it. Whether current cash flow supports maxing the contribution every year. How the contribution interacts with the QBI deduction and the rest of Schedule C. The Form 5500-EZ filing once Solo 401k assets cross $250,000. The first two often need an accountant; the third is paperwork.

Templates that fit this question

• 401k Calculator - A focused tool that projects 401k growth with employee and employer contributions. The math works for a Solo 401k just as well as a W-2 401k; the only difference is the contribution sources.
• Retirement Financial Planning Projections - The broader 40-year plan. Model Solo 401k and SEP IRA scenarios side by side, see the cumulative tax effect, and project the after-tax balance at retirement. Fits when the contribution decision is one piece of a full retirement projection.

Both work in Google Sheets, Excel, and LibreOffice Calc. No setup, no subscription, data stays on your device.

Related

• Roth vs Traditional IRA Spreadsheet - The Roth-versus-pre-tax math that applies to the Solo 401k deferral side.
• Retirement Account Tracker: 401(k) and IRA in One Sheet - Tracking multiple accounts (including SEP IRA and Solo 401k) in one place.