Self-employed retirement: the limits that actually apply to you

A W-2 employee contributing to a 401k has one limit: $23,500 in 2026 (plus $7,500 catch-up if 50 or older). As a self-employed worker with a Solo 401k, you have two: the employee contribution limit applies to you, and you can also make employer contributions up to 25% of your adjusted net earnings. The combined limit is $70,000 per year. That's more than three times what a standard 401k allows.

Why Solo 401k beats SEP-IRA at most income levels

Both accounts allow the same employer contribution (25% of net earnings). The difference is that the Solo 401k also allows an employee contribution up to $23,500. For someone with $80,000 in net income, the SEP-IRA allows about $18,587 in contributions. The Solo 401k allows $18,587 plus $23,500 — nearly $42,000 total, more than double, until the combined $70,000 limit kicks in.

At very high income levels (above roughly $330,000 in net earnings), both accounts hit the $70,000 cap and the advantage narrows to zero. Below $80,000, the employee contribution component makes the Solo 401k the clear winner.

The adjusted net earnings calculation

Contribution limits for self-employed workers are calculated on "adjusted net earnings" — your Schedule C net profit minus half of your SE tax liability. This is the same deduction that reduces your federal income tax base. The adjustment typically reduces your net earnings by 7–8%, which slightly reduces the employer contribution compared to what a simple "25% of profit" calculation would suggest.

Roth vs. traditional for both accounts

Solo 401k accounts can offer both traditional (pre-tax) and Roth (after-tax) options, depending on your plan document. Roth Solo 401k contributions don't reduce your current-year taxes, but the growth and withdrawals in retirement are tax-free. SEP-IRA contributions are always traditional (pre-tax). For high earners who expect to be in a similar or higher bracket in retirement, the Roth Solo 401k is worth considering.

Where to open one

Solo 401k plans are offered by Fidelity, Vanguard, Schwab, and TD Ameritrade — all with no setup or maintenance fees for basic plans. The Solo 401k must be established by December 31 of the tax year to contribute for that year, though you can make contributions up until the tax filing deadline including extensions. SEP-IRA accounts can be opened up to the filing deadline, which makes them easier to open retroactively.

Contribution limits reference 2026 IRS figures. Contribution calculations use the Schedule SE simplified method. Consult a financial advisor or CPA before establishing a retirement plan or making contribution decisions.