2026 retirement plan comparison
| Feature | Solo 401(k) | SEP IRA | SIMPLE IRA |
|---|---|---|---|
| Employee deferral, before catch-up | $24,500 | No employee salary deferral | $17,000 generally; $18,100 for certain plans |
| Combined employee and employer limit | $72,000 before catch-up, subject to compensation | Lesser of $72,000 or 25% of employee compensation; self-employed calculation differs | Employee limit plus required employer contribution |
| Catch-up, ages 50–59 or 64+ | $8,000 | None | $4,000 generally; $3,850 for certain plans |
| Catch-up, ages 60–63 | $11,250 instead of $8,000 | None | $5,250 instead of the ordinary catch-up |
| Employer contribution | Plan formula and compensation limits apply | Generally a uniform percentage for eligible employees | Generally a 3% match or 2% nonelective contribution; special rules can change these |
| Staffing fit | Owner-only business, including a working spouse, with no eligible common-law employees | Can cover eligible employees | Generally employers with 100 or fewer employees paid at least $5,000 in the preceding year |
| Roth treatment | If the plan offers it | Roth SEP treatment is permitted | Roth SIMPLE treatment is permitted |
| Participant loans | Only if the plan allows them and loan limits are met | Not permitted | Not permitted |
The SIMPLE IRA figures require a plan-specific check. An eligible employer with 25 or fewer employees generally uses the higher deferral limit; certain employers with 26–100 employees can elect it with increased employer contributions. Do not combine the higher deferral with the ordinary catch-up by assumption.
Solo 401(k): employee and employer contributions
A one-participant 401(k) can let an owner contribute in two roles: through employee deferrals and through employer contributions. For 2026, the employee limit is $24,500 and the combined annual-additions limit is $72,000 before catch-up contributions. Compensation and plan terms can make the permitted amount lower.
An eligible catch-up can raise that overall ceiling to $80,000 for ages 50–59 or 64+, or $83,250 for ages 60–63. The enhanced catch-up replaces the ordinary catch-up; it does not stack on top of it.
For an S-Corp shareholder, W-2 compensation supports retirement contributions. Shareholder distributions do not. A sole proprietor uses adjusted net earnings and the self-employed worksheet, rather than simply taking 25% of Schedule C profit.
Your employee deferral limit is generally shared across your 401(k) and similar deferral plans. A day-job plan does not create a second full employee limit for your side business. Employer limits and related-business rules need a separate review.
Contribution examples with the assumptions shown
Hypothetical S-Corp owner: under age 50, $100,000 of eligible W-2 compensation, no deferrals to another plan, and plan terms permitting a 25% employer contribution. These examples describe alternative plans, not contributions to all three at once.
| Plan | Employee | Employer | Total |
|---|---|---|---|
| Solo 401(k) | $24,500 | $25,000 | $49,500 |
| SEP IRA | $0 | $25,000 | $25,000 |
| SIMPLE IRA, ordinary limit and 3% match | $17,000 | $3,000 | $20,000 |
A Solo 401(k) catch-up would bring this example to $57,500 at age 52 or $60,750 at age 61, if allowed. A SIMPLE using the higher deferral limit would have a different result.
Hypothetical sole proprietor: $150,000 of Schedule C net profit, under age 50, no other wages, no other plan deferrals, and no other adjustments. At these earnings, self-employment tax is approximately $21,194: $150,000 × 92.35% × 15.3%. Subtracting its deductible half leaves about $139,403. A 20% employer contribution is about $27,881; adding the $24,500 employee deferral produces about $52,381. Use the IRS worksheet and return rounding for an actual contribution.
A contribution is money moved into retirement savings. A deduction is not a dollar-for-dollar tax credit, and Roth contributions do not produce the same current deduction as pretax contributions. Household income, QBI and state treatment can change the tax result.
SEP IRA: employer funding and employee coverage
A SEP can suit an employer that wants flexible annual funding without employee salary deferrals. For 2026, the employee limit is the lesser of $72,000 or 25% of compensation. A self-employed owner uses a reduced contribution rate and adjusted earnings calculation.
When an employer contributes, the plan generally must cover eligible employees at the same contribution percentage. It is not an owner-only deduction if employees qualify. Review age, service and compensation requirements before choosing a contribution.
A SEP can generally be established and funded by the business tax-return deadline, including extensions. The applicable return matters: an S-Corp and a sole proprietor do not automatically share the same deadline.
Roth SEP contributions are allowed under current law when offered through the arrangement. Confirm availability and reporting with the provider. Do not assume every contribution receives pretax treatment.
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SIMPLE IRA: employee saving with an employer obligation
A SIMPLE IRA generally fits an employer with 100 or fewer employees who each received at least $5,000 in the preceding year and that does not maintain another plan, subject to exceptions. Employees can defer pay, and the employer must make the required contribution.
The ordinary 2026 deferral limit is $17,000. Certain plans use $18,100. The ordinary catch-up is $4,000 at age 50 or older, while certain plans use $3,850. At ages 60–63, the enhanced catch-up is $5,250. Confirm the applicable combination with the administrator.
The usual employer choices are a dollar-for-dollar match up to 3% of compensation or a 2% nonelective contribution for eligible employees. For a qualifying employer with 26–100 employees electing the higher employee limit, the corresponding requirement is generally a 4% match or 3% nonelective contribution. Other permitted contributions and exceptions can apply.
A new SIMPLE IRA generally must be established by October 1. A newly created employer has a limited exception. Employee deposits, employer funding and employee notices have separate deadlines.
Hiring employees changes the decision
An owner-only 401(k) stops being a simple owner-only arrangement when eligible common-law employees must be covered. Part-time status alone does not exclude someone: long-term part-time rules can require deferral eligibility after at least 500 hours in each of two consecutive 12-month periods, subject to age and other applicable requirements.
Give the administrator your employee census, hire dates and hours. Ask about related businesses, leased employees and any working spouse. Each spouse needs qualifying compensation and a separate calculation; a household does not automatically qualify for two maximum contributions.
If you have a crew, compare a regular 401(k), including possible safe-harbor designs, with SEP and SIMPLE options. The owner-only maximum is not the right starting assumption.
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Pretax, Roth and the 2026 catch-up change
Pretax contributions can reduce current taxable income, with distributions generally taxed later. Roth contributions are included in current income; qualified distributions receive different tax treatment. The choice depends on your current and expected future position, not a universal tax-bracket cutoff.
For 2026, an affected 401(k) participant with more than $150,000 of prior-year FICA wages from the employer sponsoring the plan must generally make catch-up contributions as Roth contributions. Do not apply that test to business revenue or shareholder distributions. The Roth catch-up mandate does not apply to SIMPLE IRAs. Confirm how the rule applies to your compensation and plan.
Loans are another plan-design choice. A 401(k) may permit them, but the usual ceiling is the lesser of $50,000 or 50% of the vested account balance, with exceptions and adjustments for existing loans. SEP and SIMPLE IRAs do not permit participant loans.
Setup, elections, deposits and annual filings
These are separate dates. A plan-adoption deadline does not automatically extend the deadline for an employee salary-deferral election or payroll deposit. Have the administrator confirm all three before year-end.
- 401(k): employer-funded adoption and contribution deadlines can extend to the return deadline. Deferral elections generally must be made before compensation becomes available. A special first-year rule can let a sole proprietor with no other participant adopt a new plan after year-end and pay deferrals by the unextended return deadline.
- SEP: establishment and funding generally follow the employer return deadline, including extensions.
- SIMPLE: the general new-plan establishment cutoff is October 1, with a new-employer exception; deposit and notice deadlines still apply.
- Form 5500-EZ: check the asset threshold across applicable one-participant plans and the final-year filing requirement. A small account balance does not excuse a required final return.
Keep the signed plan document, employee eligibility records, contribution calculations and proof of deposits with your records.
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How to choose and what to bring to the discussion
- List everyone who works in the business, including related businesses and a working spouse.
- Separate owner wages, distributions and self-employment income.
- List retirement deferrals already made through other employers.
- Compare the total cost of owner and employee contributions, administration and ongoing filings.
- Agree on contribution, election, deposit and notice deadlines.
Common mistakes are using an outdated annual limit, treating a distribution as eligible compensation, overlooking employee eligibility, confusing a Roth contribution with a current deduction, and funding a plan before checking what the business can afford.
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Frequently asked questions
What is the maximum Solo 401(k) contribution for 2026?
The combined employee and employer limit is $72,000 before catch-up contributions, subject to compensation and plan terms. An eligible catch-up can increase the ceiling to $80,000 at ages 50–59 or 64+, or $83,250 at ages 60–63. The employee deferral limit is $24,500 before catch-up.
Can I have a Solo 401(k) and a SEP IRA?
Sometimes, but contributions to plans sponsored by the same or related employers can share limits. A second account does not automatically give you a second maximum. Ask the administrator to coordinate the plans.
Which plan is best for a self-employed owner?
It depends on employee eligibility, compensation, contributions elsewhere and the cost of administration. A Solo 401(k) can allow employee deferrals as well as employer contributions; a SEP offers employer-funded simplicity; a SIMPLE can support employee saving.
Can my spouse participate?
A spouse who works in the business and has qualifying compensation may participate. Calculate each person’s permitted contribution separately; employing a spouse does not automatically double the household maximum.
What happens when I hire employees?
Review eligibility immediately with the plan administrator. Eligible employees, including some long-term part-time workers, can require coverage and change the plan’s administration and testing obligations.
What is the SEP IRA limit for 2026?
For an employee, the limit is the lesser of $72,000 or 25% of compensation. A self-employed owner uses adjusted net earnings and the applicable reduced contribution rate.
Are all retirement contributions tax-deductible?
No. Roth contributions do not receive the same current deduction as pretax contributions. Compensation limits, plan rules and the 2026 Roth catch-up requirement can also affect the result.