Solo 401(k) and SEP IRA Contribution Calculator

Solo 401(k) or SEP IRA: Which Holds More?

Both plans let a self-employed person put an employer contribution of up to 25% of compensation into a tax-deferred account. For a sole proprietor that works out to 20% of net earnings, because the contribution itself reduces the earnings it is figured on. A solo 401(k) adds a second layer, the employee deferral of up to $24,500 in 2026, plus catch-up contributions from age 50. A SEP IRA has no deferral and no catch-up. At most incomes the solo 401(k) holds more. The SEP is simpler to open and has no Form 5500-EZ filing, which a solo 401(k) needs once its assets pass $250,000.

How the Pub 560 Worksheet Works, With a Worked Example

IRS Publication 560 has self-employed people figure their own contribution in three steps.

1. Net earnings. Start from Schedule C net profit and subtract the deductible half of self-employment tax.
2. Reduced rate. Convert the plan’s rate to the self-employed rate, plan rate ÷ (1 + plan rate). A 25% plan becomes 0.200000 and a 10% plan becomes 0.090909.
3. Limits. Apply the dollar limits with the 21-step Deduction Worksheet. When there are deferrals, the worksheet also caps the employer share at half of net earnings minus deferrals.

The IRS example, reproduced. A sole proprietor with no employees has an 8.5% plan, $200,000 of net profit and a $13,596 deduction for half of SE tax (2025 figures). Net earnings are $200,000 − $13,596 = $186,404. The rate worksheet gives 0.085 ÷ 1.085 = 0.078. Then $186,404 × 0.078 = $14,540, which is less than $350,000 × 8.5% = $29,750, so the deduction is $14,540. This calculator returns the same numbers for 2025 with an 8.5% rate. It also works out the $13,596 itself: 92.35% of $200,000 is $184,700, and Social Security tax applies up to the $176,100 wage base.

The default, 2026. $120,000 of profit gives a $8,478 SE tax deduction and $111,522 of net earnings. At 20%, the employer share is $22,304. The full $24,500 deferral fits, so the solo 401(k) total is $46,804, against $22,304 in a SEP IRA.

2026 Contribution Limits and Deadlines

• SEP IRA: you can set it up and fund it as late as the due date of your return, including extensions.
• Solo 401(k): employer contributions are also due by the return due date with extensions. A sole proprietor with no employees may adopt a new 401(k) after year-end, as late as the filing deadline without extensions. The first year’s deferrals must then be paid in by that same deadline.
• Deferral limit is per person. Deferrals made at another job in the same year count against the same limit. Enter them, and the calculator reduces the room left.
• Where to deduct: contributions for yourself go on Schedule 1 (Form 1040), line 16 (Pub 560).

Scenarios

At $30,000 of profit the worksheet’s half-of-earnings test holds the employer share to $1,691. The deferral is $24,500, so the solo 401(k) total is $26,191 against $5,576 in a SEP, which is where the solo plan helps most. At $400,000 the $72,000 limit binds, and the employer share is cut to $47,500 so the total stays at $72,000. For an S corporation owner the base is W-2 wages, not profit. The employer share is 25% of those wages, and distributions do not count.

What This Calculator Does Not Cover

It assumes one plan, with you (and possibly a spouse) as the only participant. It leaves out these cases:

• Plans that cover employees, which bring nondiscrimination and coverage rules.
• Partnerships beyond simple K-1 earnings.
• Defined benefit plans.
• Roth versus pre-tax choices.
• Catch-up deferrals made at another employer.
• The 0.9% Additional Medicare Tax, which does not affect the SE tax deduction.

It also does not file Form 5500-EZ for you. If you have employees, more than one business or plan, or a fiscal-year business, have a CPA or plan provider run the full worksheet.

Common Mistakes

• Using 25% of profit. For a sole proprietor the employer share is about 20% of profit after half of SE tax, not 25% of profit.
• Double-dipping the deferral. The $24,500 is shared with any 401(k) or 403(b) at a day job.
• Missing the 60 to 63 window. The higher $11,250 catch-up applies only in the years you turn 60, 61, 62 or 63. At 64 it drops back to $8,000.
• Opening the plan too late for deferrals. A plan adopted after year-end must receive the first year’s deferrals by the filing deadline without extensions.
• Counting S corp distributions. Only W-2 wages count as compensation for an S corporation owner.

Frequently Asked Questions

How to Use This Calculator

1. Choose the tax year and business type — 2026 limits are the default; S corp owners enter W-2 wages instead of profit.
2. Enter net profit — from Schedule C line 31 (sole proprietors and single-member LLCs).
3. Enter your age and plan rate — age on December 31 sets the catch-up; 25% is the maximum employer rate.
4. Add deferrals made elsewhere — any 401(k) or 403(b) deferrals at another job share the same limit.