Solo 401(k) vs. SEP IRA Contribution Calculator
Maximize your tax-deferred retirement shelter as an S-Corp Owner, 1099 Contractor, or Solo Consultant.
Business & Income Profile
Employer profit sharing is calculated as 25% of this W-2 figure.
Adjusted for 50% self-employment tax deduction (20% effective rate).
Combined Federal + State tax bracket to estimate upfront cash savings.
Solo 401(k)
SEP IRA
Solo 401(k) Extra Annual Tax Shield Advantage
You can shield an additional $23,000 / year more in a Solo 401(k) than in a SEP IRA at this salary.
Projected Compounded Retirement Wealth
Solo 401(k) vs. SEP IRA compounding over your investment horizon.
Projected Solo 401(k) Nest Egg
$2,624,592
Projected SEP IRA Nest Egg
$1,485,996
Plan Architecture & Feature Breakdown
| Feature | Solo 401(k) | SEP IRA |
|---|---|---|
| Employee Contribution Allowed? | Yes (Up to $23,000 / $30,500) | No ($0) |
| Roth (Post-Tax) Option? | Yes (Roth Solo 401k + Mega Backdoor) | Limited (SECURE 2.0 partial) |
| Participant Loan Provision? | Yes (Borrow up to $50,000) | No (Prohibited transaction) |
| Backdoor Roth Compatibility | Clean (No Pro-Rata Rule) | Triggers IRA Pro-Rata Rule |
| Annual IRS Filing | Form 5500-EZ (Only once assets > $250k) | None Required |
What this calculator does
This tool models the maximum allowable tax-advantaged retirement contributions for self-employed individuals, 1099 contractors, and S-Corp owners. It automatically calculates the optimal split between employee elective deferrals and employer profit-sharing contributions based on your entity structure and net business income. By comparing a Solo 401(k) and a SEP IRA side-by-side, it helps you determine which vehicle offers the highest contribution limit and upfront tax savings for your specific earnings profile.
How the math works
The calculation logic strictly follows 2026 IRS contribution limits under IRC § 401(k) and § 408(k). For a Solo 401(k), you can contribute as both an employee (up to $23,000, or higher with catch-ups) and as an employer (up to 25% of your W-2 salary, or 20% of net self-employment income). The combined limit cannot exceed the 2026 overall defined contribution cap of $69,000 (plus applicable catch-ups). A SEP IRA only permits employer contributions, mathematically requiring a much higher baseline income to reach the same $69,000 maximum. These figures are calibrated to the latest IRS One-Participant 401(k) guidelines.
Worked example
Assume you are an S-Corp owner under age 50 with a W-2 salary of $120,000. Under a SEP IRA, your maximum contribution is limited strictly to 25% of your W-2 salary, totaling $30,000. However, with a Solo 401(k), you can make an employee deferral of $23,000 plus the 25% employer profit-sharing contribution of $30,000, for a total allowable contribution of $53,000. At a 32% marginal tax rate, maxing out the Solo 401(k) instead of the SEP IRA shields an additional $23,000 from taxes, generating an extra $7,360 in immediate tax savings for the year.
For related self-employment scenarios, you can also compare W2 vs 1099 contracting or optimize your S-Corp reasonable salary. High earners might also consider exploring a Mega Backdoor Roth 401(k) strategy.
Related Tools
- Backdoor Roth IRA Pro-Rata Rule Calculator
- W-2 vs 1099 vs C2C Calculator
- 401(k) Employer Match Calculator
Frequently Asked Questions
Why does a Solo 401(k) allow higher contributions than a SEP IRA on lower W-2 salaries?
A Solo 401(k) allows both an employee elective deferral ($23,000 in 2026) and a 25% employer profit-sharing contribution. A SEP IRA only allows employer contributions (25% of W-2), meaning you need a $276,000 salary to max out a SEP IRA, compared to only ~$182,000 for a Solo 401(k).
Does a Solo 401(k) trigger the IRA Pro-Rata Rule for Backdoor Roth IRAs?
No. Solo 401(k) balances are held under a qualified employer trust (IRC § 401a) and are completely exempt from the IRS Form 8606 Pro-Rata Rule, allowing you to execute clean Backdoor Roth IRAs. SEP IRAs, however, count toward your pre-tax IRA balance and trigger severe pro-rata taxes.
When is an annual IRS Form 5500-EZ required for a Solo 401(k)?
Form 5500-EZ is only required once your total Solo 401(k) plan assets (including rollover accounts and spouse assets) exceed $250,000 at the end of the plan year, or upon final plan termination.
Disclaimer
Educational/scenario-analysis only; not tax, legal, or investment advice; consult a licensed CPA/advisor; figures reflect 2026 tax year and may change. Built and verified by The Core-AI Engineering Desk — last reviewed August 2026. Calibrated strictly to 2026 statutory figures.