Retirement Planning for Freelancers: SEP-IRA vs Solo 401k

Freelancers don’t get an employer-sponsored 401(k) with matching contributions, but the retirement accounts available to the self-employed are actually more generous in contribution limits than a typical employee plan. The two main options, a SEP-IRA and a Solo 401(k), work differently enough that the right choice depends on your income, whether you have employees, and how much paperwork you’re willing to take on.

SEP-IRA

Simple to set up and administer, with contributions capped at 25 percent of net self-employment earnings, up to $72,000 for 2026. There is no separate “employee” contribution the way a 401(k) has; it is all treated as an employer contribution, calculated on a formula tied to your net earnings after the deduction for half your self-employment tax. Most major brokerages (Fidelity, Schwab, Vanguard) let you open a SEP-IRA online in under 15 minutes with no setup fee, and you have until your tax filing deadline, including extensions, to both open the account and make the contribution for that tax year. That flexibility makes a SEP-IRA useful if you don’t know your final net income until you’re doing your taxes.

Solo 401(k)

Allows both an “employee” contribution, up to $24,500 for 2026, and an “employer” profit-sharing contribution of up to 25 percent of compensation, which often lets you contribute more at moderate income levels than a SEP-IRA allows, since the employee deferral doesn’t depend on your net earnings the way the SEP-IRA’s employer contribution does. Freelancers aged 50 to 59 or 64 and older can add a $8,000 catch-up contribution to the employee side; those aged 60 to 63 can add $11,250 if the plan allows it. It also supports a Roth option at some providers, which a SEP-IRA does not. The tradeoff is more paperwork: a Solo 401(k) must be opened by December 31 of the tax year (unlike a SEP-IRA’s later deadline), and once plan assets pass $250,000 you must file a short annual Form 5500-EZ with the IRS.

How the numbers compare at different income levels

At lower net self-employment income, the two plans often land close to the same total contribution, because the SEP-IRA’s 25 percent-of-earnings formula and the Solo 401(k)’s employee-deferral-plus-profit-sharing formula both scale with income. The gap widens in the middle: a freelancer with roughly $60,000 to $100,000 in net self-employment income can typically contribute meaningfully more to a Solo 401(k), because the fixed employee deferral is available regardless of the profit-sharing calculation, while a SEP-IRA contribution is capped purely by the 25 percent formula. At very high income, both plans converge again since they share the same $72,000 combined ceiling for 2026. These figures are general mechanics, not a substitute for running your own numbers with a tax professional, since the calculation depends on your specific net earnings after self-employment tax adjustments.

If you have employees

This is the deciding factor for many freelancers: a SEP-IRA generally requires you to contribute the same percentage for any eligible employees that you contribute for yourself, which gets expensive fast once you have even one or two staff. A Solo 401(k) is only available if you have no employees other than a spouse, so once you hire, your options narrow to a SEP-IRA or a different small-business retirement plan entirely, such as a SIMPLE IRA. If you expect to bring on contractors classified as employees within the next few years, that alone can be a reason to default to a SEP-IRA’s simplicity rather than build a Solo 401(k) you’ll have to unwind.

Setting up either account

Both accounts are opened directly with a brokerage rather than through the IRS, and neither requires a lawyer or accountant to establish, though many freelancers loop in a tax preparer to confirm the contribution calculation. A SEP-IRA typically needs just an application and a completed IRS Form 5305-SEP kept on file (not filed with the IRS). A Solo 401(k) usually requires an adoption agreement plus an Employer Identification Number, since it’s technically a small-business retirement plan even when the “business” is just you. Funding can happen via a single lump sum or periodic transfers throughout the year, and most brokerages let you change or skip contributions in a lean year with no penalty, since neither plan requires a fixed annual contribution.

Which to choose

Solo freelancers with no employees who want to maximize contributions at moderate income and want a Roth option generally do better with a Solo 401(k). Freelancers who want the simplest possible setup, who have irregular income and want maximum flexibility on when to contribute, or who have or expect to hire employees, are usually better served by a SEP-IRA. Either way, opening the account is free at most major brokerages; the cost is only in your contributions, and starting with a smaller, consistent contribution beats waiting until you feel ready to “max out” a plan.

Frequently Asked Questions About Freelancer Retirement Accounts

Can I have both a SEP-IRA and a Solo 401(k) at the same time? Generally no for the same self-employment income in the same year, since both are employer plans tied to the same business; most freelancers pick one or the other rather than layering them.

What happens to my Solo 401(k) or SEP-IRA if I stop freelancing? Both can be rolled over into a Traditional IRA, or in some cases kept open with no new contributions, without triggering taxes or penalties as long as it’s a direct rollover.

Do I have to contribute every year? No. Both plans let you contribute nothing in a slow year and a larger amount in a strong year, which suits freelance income variability better than a fixed payroll deduction would.

Is a Solo 401(k) worth the extra paperwork for a smaller freelance income? For most freelancers under roughly $40,000 to $50,000 in net self-employment income, the two plans allow similar total contributions, so the SEP-IRA’s simpler setup and later deadline often outweigh the Solo 401(k)’s extra flexibility until income grows.

Should I talk to a financial advisor before opening either account? This guide explains how the two plans work, but it isn’t personalized financial or tax advice — a CPA or fee-only financial advisor can confirm which plan and contribution amount fit your specific income and long-term goals.

Can I still contribute to a Traditional or Roth IRA on top of a SEP-IRA or Solo 401(k)? Yes. A SEP-IRA or Solo 401(k) is a separate employer plan from a personal Traditional or Roth IRA, so many freelancers fund both, subject to the usual personal IRA contribution limit and any income phase-outs on the Roth side.