Tax · 7 min read
SEP IRA vs Solo 401(k)
Freelancers can shelter more income from tax than almost any W-2 employee — but only if they pick the right retirement plan. SEP IRA and Solo 401(k) are the two workhorses.
How each plan works
- SEP IRA — employer-only contributions, up to 25% of net self-employment income, simple to open and run
- Solo 401(k) — employee + employer contributions, available to owner-only businesses (plus spouse), supports Roth + loans
Contribution limit shape
- Both plans share a high overall cap (indexed annually — check current year)
- Solo 401(k) usually lets lower-income freelancers contribute more because of the employee deferral
- SEP usually catches up at higher income because the 25% employer side dominates
Roth and loan features
- Solo 401(k) supports Roth deferrals (Solo Roth 401(k))
- Solo 401(k) supports participant loans up to plan limits
- SEP IRA is traditional pre-tax only and has no loans
