Retirement accounts are the single biggest tax lever available to freelancers. The right account lets you reduce your taxable income by tens of thousands of dollars per year — legally. But the Solo 401(k) and SEP-IRA have very different limits depending on your income. Here's exactly which one wins, at which income level.
The key difference is how contributions are calculated:
SEP-IRA: Employer contributions only — capped at 25% of net self-employment income (after the SE tax deduction). On $50,000 net income, that's approximately $9,293.
Solo 401(k): Has two contribution buckets — (1) an employee elective deferral up to $24,500, plus (2) employer profit-sharing contributions up to 25% of net SE income. Combined, the total cannot exceed $72,000, or $80,000 once you turn 50.
This means at lower income levels, the Solo 401(k)'s employee contribution makes it far more powerful.
| Net Self-Employment Income | SEP-IRA Max | Solo 401(k) Max | Winner |
|---|---|---|---|
| $30,000 | $5,576 | $27,881 | Solo 401(k) — 5x more |
| $50,000 | $9,293 | $33,793 | Solo 401(k) — 3.6x more |
| $75,000 | $13,939 | $38,439 | Solo 401(k) — 2.8x more |
| $100,000 | $18,587 | $43,087 | Solo 401(k) — 2.3x more |
| $150,000 | $27,881 | $52,381 | Solo 401(k) — 1.9x more |
| $252,500 | $47,506 | $72,000 (maxed) | Solo 401(k) — 1.5x more |
| $377,000+ | $72,000 | $72,000 | Tie |
* Solo 401(k) employee contribution is $24,500 for 2026. Employer portion is 20% of net SE profit after the SE deduction (effective rate). At $30,000 the total is capped at 100% of that adjusted profit, which is why it is not $24,500 plus the employer share. Catch-up contributions ($8,000 at 50+, $11,250 at ages 60 to 63) sit on top of these figures and are not included. Figures are approximate — verify with your plan provider.
Let's take a freelancer earning $80,000 net income in the 22% federal bracket, plus ~5% state tax = 27% combined marginal rate.
| Scenario | Contribution | Tax Saved |
|---|---|---|
| No retirement account | $0 | $0 |
| SEP-IRA (about 20% of net profit) | ~$14,900 | ~$4,023 |
| Solo 401(k) — employee only | $24,500 | ~$6,615 |
| Solo 401(k) — employee + employer | ~$39,400 | ~$10,638 |
By maxing a Solo 401(k) instead of a SEP-IRA at this income level, the freelancer saves an extra $6,615 per year in taxes — while putting the same difference into their own retirement account.
Despite losing on contribution limits at most income levels, SEP-IRA has real advantages in specific situations:
Many plan providers now offer a Roth version of the Solo 401(k). The Roth election applies to the employee contribution portion only:
For most freelancers currently in the 22% bracket who expect to be in a higher bracket in retirement (or if tax rates rise), the Roth is worth considering for at least part of your contribution. SEP-IRA has no Roth option.
Open a Solo 401(k) if you're a solo freelancer with no employees and you want to maximize tax deductions. It nearly always wins on contribution limits. Use SEP-IRA if you need the simplicity, the late-opening flexibility, or if you have employees.
| Provider | Solo 401(k) | SEP-IRA | Notes |
|---|---|---|---|
| Fidelity | ✅ Free | ✅ Free | Best for beginners. No fees, good funds. |
| Vanguard | ✅ Free | ✅ Free | Best index funds. Strong for long-term. |
| Charles Schwab | ✅ Free | ✅ Free | Easy app. Good customer service. |
| Betterment | ❌ No Solo 401k | ✅ Yes | Good if you want automated investing. |
Enter your income and expenses — the calculator shows your total tax before and after deductions.
Calculate My Tax Bill →For informational purposes only — not financial or tax advice. Contribution limits and rules change annually. Verify current limits at irs.gov and consult a CPA or financial advisor for your situation.