SEP IRA vs Solo 401(k) 2027 Comparison Calculator
Compare maximum 2027 contributions to a SEP IRA vs Solo 401(k) for a self-employed sole proprietor or S corp owner.
SEP IRA vs Solo 401(k) for 2027
Both plans target self-employed individuals, but Solo 401(k) almost always wins at incomes under ~$345K because it adds an employee deferral ($24,500 in 2027, $32,000 with catch-up at 50+) ON TOP OF the same 20% employer profit-share that SEP allows. SEP is simpler — Form 5305-SEP is one page — but the simplicity costs $10K-$30K of annual contribution room at most income levels. Source: IRC §408(k), §401(k), Rev. Proc. 2024-40. Last updated: May 2026.
When Solo 401(k) Wins (Almost Always)
For 2027, Solo 401(k) lets you contribute the LESSER of $73,500 (under 50) or 100% of pay. SEP IRA lets you contribute 20% of net SE earnings (max $70,000 absolute). At $100K profit: SEP = $20,000, Solo 401(k) = $44,500 ($24,500 deferral + $20,000 employer). Solo 401(k) wins by $24,500. At lower incomes the gap is even bigger as a percentage.
When SEP IRA Wins
SEP wins only when: (1) you're a freelancer who didn't open a plan before Dec 31 — SEP can be opened by the extended tax-return due date (April/October next year), whereas Solo 401(k) had to exist by year-end. (2) You employ part-time helpers — SEP requires equal % to all employees over 21 with 3 of last 5 years service, which can be expensive. Solo 401(k) only allows the owner + spouse.
Roth Option: Big Solo 401(k) Edge
Solo 401(k) allows Roth deferrals (after-tax) of the full $24,500/$32,000 employee portion. SEP IRA must be all pre-tax. For mid-career professionals expecting higher future tax rates, Roth Solo 401(k) can be transformative — locking in today's lower rate on tax-free growth. SECURE 2.0 also allows in-plan Roth conversions of employer contributions in some plans.
Frequently Asked Questions
What's the 2027 SEP IRA contribution limit?
20% of net SE earnings (25% of W-2 for S corp owners) up to a maximum of $70,000 (projected for 2027 based on IRS Rev. Proc. 2024-40). NO employee deferral component \u2014 just the employer profit-share. No age-based catch-up provision.
What's the 2027 Solo 401(k) contribution limit?
$73,500 total combined (under age 50). $81,000 with $7,500 catch-up at age 50+. $84,250 with $10,750 SECURE 2.0 super-catch-up at ages 60-63. Made up of employee deferral ($24,500 under 50) + employer profit-share (20-25% of compensation).
When does SEP IRA beat Solo 401(k)?
Rarely. SEP wins when: (1) you missed the December 31 Solo 401(k) setup deadline (SEP can be opened by tax return due date), (2) you employ part-time staff who would require expensive SEP contributions, (3) you want simplest possible administration. At equivalent income, Solo 401(k) lets you save $10K-$25K more annually.
Can I convert SEP to Solo 401(k)?
Yes \u2014 roll over SEP IRA balance to a Solo 401(k) (must be properly drafted to accept rollovers). Many self-employed individuals start with SEP for simplicity then upgrade to Solo 401(k) when income grows. After rollover, close the SEP and use only Solo 401(k) going forward.
Are SEP IRA contributions deductible for 2027?
Yes \u2014 fully deductible on Schedule 1, line 16 (self-employed retirement plans). Both SEP and Solo 401(k) employer contributions are above-the-line deductions reducing AGI. Employee deferrals to a Solo 401(k) are also pre-tax (or Roth, your choice). Roth deferrals are NOT deductible but grow tax-free.
What about a SIMPLE IRA \u2014 should I consider that too?
SIMPLE IRAs are designed for businesses with employees. For solo entrepreneurs, SIMPLE caps employee deferral at $17,000 (2027 est.) + 3% match \u2014 total ~$20K-$25K. That's less than SEP and far less than Solo 401(k). Only consider SIMPLE if you have employees and want to require ALL of them to participate.