As the year-end approaches, owner-only businesses have an opportunity to reduce taxable income and build long-term retirement savings—if the right plan is in place.
For self-employed individuals and couples with no employees, the two most common options are the SEP IRA and the Solo 401(k). While both are effective, their contribution rules differ in ways that can lead to very different outcomes—especially for those of moderate income or looking to contribute more than just a modest percentage.
Here’s how to think through the tradeoffs, including one critical deadline that can’t be missed.
Who These Plans Are Designed For
Both the Solo 401(k) and the SEP IRA are intended for:
- Sole proprietors filing on Schedule C
- S OR c corporation owners
- LLCs taxed as either a sole proprietorship, S corporation or C corporation
If you have full-time employees other than your spouse, you will want to consider other plan options.
SEP IRA: Simple Setup, Employer-Only Contributions
A SEP IRA is easy to establish and doesn’t require much ongoing administration. You can open and fund it all the way up to your tax-filing deadline, including extensions.
However, contributions are made by the employer only:
- For sole proprietors: up to 20% of net Schedule C income
- For S corps or LLCs with W-2 income: up to 25% of wages
- Maximum contribution for 2026: $72,000
- No catch-up contributions allowed
SEP IRAs are ideal for those who want a straightforward solution and aren’t looking to contribute more than the basics.
Solo 401(k): Higher Contribution Potential and More Flexibility
The Solo 401(k) adds an employee component to the contribution, which significantly expands how much can be saved—especially for those with moderate or high income.
For 2026:
- Employee salary deferral: up to $24,500 (or $32,500 if age 50+)
- Employer contribution: up to 20% (Schedule C with adjustments) or 25% (W-2)
- Combined limit: $72,000 (under 50) or $80,000 (age 50+)
This structure allows for a much larger deduction at lower income levels than a SEP IRA, particularly if you can afford to defer the full employee portion.
Solo 401(k)s also offer:
- Roth contribution options
- Catch-up contributions for those 50+
- The ability to take plan loans
- Greater design flexibility for tax and cash-flow planning
One Deadline You Can’t Miss
While a SEP IRA can be opened and funded as late as your tax filing deadline, a Solo 401(k) must be established by December 31 for calendar year taxpayers of the year you want to make contributions—even if you don’t fund it until later. Fiscal year filers have a different deadline.
That makes now the time to act if a Solo 401(k) is the better fit for your situation.
Choosing Between Them
| Scenario |
Likely Better Fit |
| Want a low-maintenance option |
SEP IRA |
| Want to maximize deductions |
Solo 401(k) |
| Need Roth or loan features |
Solo 401(k) |
| Prefer to wait until after year-end to decide |
SEP IRA |
The Bottom Line
If your business has been profitable and you can part with the cash, a Solo 401(k) often delivers the largest deduction and greatest flexibility. But to take advantage of it for this tax year, the plan must be opened by December 31—even if you fund it next year.
At Brickley Wealth Management, we help business owners weigh these options through both an investment and tax lens. If you're considering a retirement plan for your business, we can help you calculate your maximum contribution, coordinate with your CPA, and ensure everything is in place before year-end.