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Self-employment has one big perk the 9-to-5 can't match: you can shelter a huge share of your income from tax in a retirement plan. This shows the most you can contribute in 2026 through a SEP-IRA and a solo 401(k), side by side — and which one lets you save more.
Nothing you type leaves your browser. This is an estimate, not tax or investment advice — confirm contribution limits and your eligibility with a CPA or financial advisor.
When you work for yourself, you get to be both the employee and the employer of your own retirement plan — which is exactly why the contribution limits are so much higher than a personal IRA's. But there's a catch new freelancers almost always get wrong: you don't contribute a percentage of your profit. You contribute a percentage of your net earnings from self-employment, which is your profit minus the deductible half of your self-employment tax.
That's the figure this calculator builds first. Here is the chain, straight from the IRS worksheet in Publication 560:
The "20%" surprises people too. A SEP and the employer side of a solo 401(k) are both advertised as "25% of compensation" — but for the self-employed, the contribution itself reduces the compensation it's measured against, so 25% works out to an effective 20% of your net earnings (25% ÷ 1.25 = 20%). Plug those into a "25%" calculator and you'll over-contribute. This tool uses the correct reduced rate.
Look at the two ledgers above and the difference jumps out. A SEP-IRA gives you the profit-sharing piece — roughly 20% of your net earnings — and nothing else. A solo 401(k) gives you that same 20% piece plus an employee salary-deferral (up to $24,500 in 2026, or $32,500 if you're 50+). For most freelancers that deferral is the difference between sheltering 20% of their income and sheltering 40–60% of it. At low and middle incomes the solo 401(k) can let you contribute nearly everything you earned.
The SEP's advantage is simplicity: you can open one at any brokerage in a few minutes, there's no plan document, and there's never an annual IRS filing. A solo 401(k) needs a one-time plan document and, once the account tops $250,000, a short annual Form 5500-EZ. If the extra contribution room matters to you, that paperwork is almost always worth it; if you're contributing a small amount and value zero admin, a SEP is perfectly fine.
Retirement contributions lower your income tax, not your self-employment tax. The 15.3% SE tax is charged on your profit before any retirement contribution, so socking money away won't shrink it. Enter your marginal income-tax rate above to see what the contribution saves you on the income-tax side — often enough to make a maxed-out plan feel a lot cheaper than the headline number.
Both are retirement plans for the self-employed with no employees. A SEP-IRA only allows an employer profit-sharing contribution — about 20% of your net earnings. A solo 401(k) allows that same profit-sharing piece plus an employee salary-deferral (up to $24,500 in 2026, or $32,500 with the age-50 catch-up), so you can usually contribute far more at the same income. The SEP is simpler to set up and has no annual filing; the solo 401(k) needs a plan document and an eventual Form 5500-EZ.
The total annual additions limit is $72,000 for 2026 ($80,000 if you're 50 or older, $83,250 for ages 60–63). The employee salary-deferral portion of a solo 401(k) is capped at $24,500. A SEP-IRA is capped at the lesser of 20% of your net earnings or $72,000. Your actual maximum depends on your profit — this calculator works it out.
Two reasons. First, contributions are based on net earnings — your profit minus the deductible half of self-employment tax — not raw profit. Second, the "25% of compensation" rate becomes an effective 20% for the self-employed, because the contribution reduces the compensation it's calculated on (25% ÷ 1.25 = 20%). Many calculators skip both steps and overstate the limit.
No. Self-employment tax (the 15.3% for Social Security and Medicare) is calculated on your business profit before retirement contributions, so it isn't reduced. Contributions to a SEP-IRA or solo 401(k) reduce your income tax instead. Enter your marginal income-tax rate to see that saving.
The employee salary-deferral limit ($24,500 in 2026) is shared across every 401(k) you participate in — your day-job plan and your solo 401(k) combined. The employer profit-sharing piece has its own limit per unrelated employer. If you defer at a day job, lower the "Employee deferral limit" in the advanced settings by what you contribute there to keep this estimate accurate.
No. Every calculation runs entirely in your browser — nothing you type is sent to a server or stored. The link in your address bar updates so you can bookmark or share a scenario, but it only contains the numbers you chose.
Keep going
Estimate the 15.3% SE tax that sets your contribution base — and the half you deduct.
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