Self-employed owners and single-owner S corporations can shelter up to $72,000 from federal income tax in 2026 through either a Solo 401(k) or SEP-IRA — but these two plans diverge significantly on catch-up contributions, Roth availability, and administrative requirements. For owners aged 60 through 63, the Solo 401(k) now permits an additional $11,250 "super catch-up" under SECURE 2.0, pushing the total contribution ceiling to $83,250. Choosing the wrong plan — or missing a deadline — can eliminate that advantage entirely.
How Much Can a Self-Employed Owner Contribute to a Solo 401(k) in 2026?
The Solo 401(k) — also called an Individual 401(k) or owner-only 401(k) — is governed by the same IRC §401(k) and §415(c) rules as employer-sponsored plans, adapted for businesses with no common-law employees other than the owner and the owner's spouse. Contributions come from two separate sources: employee elective deferrals and employer profit-sharing.
For 2026, the employee elective deferral limit is $24,500. Participants aged 50–59 and 64 or older can add a standard catch-up contribution of $8,000, bringing their employee maximum to $32,500. Participants aged exactly 60, 61, 62, or 63 during the calendar year qualify for the SECURE 2.0 Act's super catch-up of $11,250 instead, reaching $35,750 on the employee side alone.
The employer profit-sharing percentage differs by entity structure. An S corporation owner treats W-2 wages as compensation; the business can contribute up to 25% of the shareholder-employee's W-2 salary. A sole proprietor or single-member LLC taxed as a disregarded entity uses net self-employment income reduced by the deductible half of self-employment tax under IRC §164(f), which produces an effective rate of approximately 20% of net SE income. A sole proprietor with $300,000 of net SE income can contribute roughly $60,000 in employer profit-sharing — and add $24,500 in employee deferrals — but the combined total is capped at $72,000, not $84,500.
How Much Can a Self-Employed Owner Contribute to a SEP-IRA in 2026?
A SEP-IRA under IRC §408(k) allows the employer to contribute up to 25% of each participant's compensation, capped at $72,000 for 2026. There is no employee deferral component — the entire contribution is made by the employer (or, for self-employed individuals, by the owner on their own behalf). No catch-up contributions are permitted regardless of the owner's age.
The effective rate for sole proprietors is approximately 20% of net self-employment income, identical to the profit-sharing calculation for a Solo 401(k). A sole proprietor with $200,000 of net SE income can contribute approximately $40,000 to a SEP-IRA. To reach the $72,000 maximum, a sole proprietor needs approximately $360,000 of net SE income.
SEP-IRAs cannot include a Roth component, do not permit loans, and do not allow participant investment direction beyond fund selection. They are entirely employer-controlled.
What Is the SECURE 2.0 Super Catch-Up for Ages 60–63?
The SECURE 2.0 Act (signed December 29, 2022) created a new catch-up tier under IRC §414(v)(6)(B), effective for taxable years beginning on or after January 1, 2025. Participants who will be age 60, 61, 62, or 63 at any point during the calendar year — based on attained age as of December 31 — may substitute the super catch-up for the standard catch-up contribution. The 2026 amount is $11,250, calculated as the greater of $10,000 or 150% of the 2024 regular catch-up amount, indexed for inflation under IRC §414(v)(7).
2026 Solo 401(k) Contribution Ceilings by Age Group
The super catch-up applies only to 401(k), 403(b), and governmental 457(b) plans — not to IRAs, SEP-IRAs, or SIMPLE IRAs. An owner who would benefit significantly from the extra $3,250 in 2026 ($11,250 vs. $8,000) and is currently using only a SEP-IRA should evaluate whether establishing a Solo 401(k) before December 31, 2026 is worthwhile.
Solo 401(k) vs. SEP-IRA: Which Plan Is Right for Your Situation?
The plans share the same employer profit-sharing ceiling ($72,000) but differ on nearly every other dimension. The right choice depends on income level, age, whether a Roth option is desired, and administrative tolerance.
The employee deferral component is the Solo 401(k)'s most underappreciated feature at lower income levels. An owner with $60,000 of net SE income can contribute $24,500 in employee deferrals plus roughly $11,000 in employer profit-sharing — a combined $35,500, or nearly 60% of income. A SEP-IRA would cap the contribution at roughly $12,000 (20% of $60,000). The Solo 401(k) dominates at lower income levels because the employee deferral creates contribution room that the SEP-IRA's percentage-only formula cannot match.
When Must Each Plan Be Established?
Establishment deadlines are the most commonly missed element of self-employed retirement planning, and the rules differ between the two plans.
Plan Establishment and Contribution Deadlines
DeadlinesSolo 401(k): The plan document must be adopted (signed) by December 31 of the first year for which contributions are intended. For 2026 contributions, the plan must exist by December 31, 2026. Employee elective deferrals must also be designated by December 31 — a self-employed owner cannot retroactively elect deferrals. Employer profit-sharing contributions to an existing plan can be funded up to the tax return due date including extensions (October 15, 2027, for calendar-year 2026 returns on extension).
SEP-IRA: A SEP-IRA can be established and fully funded up to the tax return due date including extensions. A sole proprietor who files for an automatic six-month extension has until October 15, 2027, to open a new SEP-IRA and make the full 2026 contribution. No plan document is required — a simple IRS Form 5305-SEP serves as the governing agreement and does not need to be filed with the IRS.
The establishment deadline asymmetry is particularly significant for owners who realize mid-2027 (while preparing their 2026 return) that they want to make retirement contributions for 2026. The SEP-IRA remains available; the Solo 401(k) window closed December 31, 2026.
What Are the Form 5500-EZ Requirements for Solo 401(k) Plans?
The administrative burden of a Solo 401(k) is minimal for new plans but grows as assets accumulate. Plans with combined fair market value of assets exceeding $250,000 at the end of the plan year must file Form 5500-EZ with the IRS. The filing deadline is July 31 of the following year (July 31, 2027, for the 2026 plan year). A final Form 5500-EZ is required when any Solo 401(k) plan is terminated, regardless of asset value.
The penalty for a late or missing Form 5500-EZ is $250 per day, up to $150,000 per plan year under IRC §6652(e). The IRS maintains a Delinquent Filer Voluntary Compliance (DFVC) program that reduces these penalties for voluntarily corrected filings. SEP-IRAs have no annual reporting requirement at any asset level — an owner with $2 million in a SEP-IRA files nothing beyond the annual Form 5498 issued by the custodian.
Which Plan Allows a Roth Option?
The Solo 401(k) can be structured to include a designated Roth account (DRAC) at the plan level, allowing elective deferrals — including catch-up contributions — to be made on an after-tax basis. Roth Solo 401(k) contributions grow tax-free and qualified distributions are tax-free under IRC §402A. Unlike a Roth IRA, there is no income limit for Roth Solo 401(k) contributions: an owner with $1,000,000 of business income can still contribute the full $35,750 (ages 60–63) to a Roth Solo 401(k).
Employer profit-sharing contributions to a Solo 401(k) are always pre-tax; only the elective deferral portion can be designated as Roth. Starting in 2026 under SECURE 2.0 Act provisions, employer contributions may also be designated as Roth contributions if the plan document permits, though most Solo 401(k) prototype plans had not yet updated their documents as of early 2026.
SEP-IRA contributions are always pre-tax. There is no Roth SEP-IRA option. Owners who want after-tax retirement savings in a SEP-IRA must make separate Roth IRA contributions (subject to the $7,500 limit and income limits for 2026).
For small business owners evaluating their first retirement plan or considering a switch from an existing SEP-IRA, the Roth option is often the deciding factor for high-income owners who expect to be in a higher bracket in retirement or want tax diversification.
How Does the SIMPLE IRA Fit for Businesses With Employees?
Once a business adds non-owner employees who meet the eligibility rules, the Solo 401(k) is no longer available — it is strictly owner-only. A SIMPLE IRA under IRC §408(p) or a traditional employer 401(k) plan becomes necessary. The SIMPLE IRA 2026 employee contribution limit is $16,500, with a $4,000 standard catch-up for ages 50–59 and 64+ ($20,500 total), and a $5,250 super catch-up for ages 60–63 ($21,750 total) under SECURE 2.0. The employer must make either a 2% nonelective contribution for all eligible employees or a 3% matching contribution. Total SIMPLE IRA contributions are significantly lower than either the Solo 401(k) or SEP-IRA maximum.
For businesses growing toward their first hire, tax planning should model the retirement plan implications before bringing on employees — since crossing that threshold eliminates the most tax-efficient self-employed plan and triggers mandatory employer contributions.
Key Deadlines and Action Items for 2026
For self-employed owners and S corporation owners looking to maximize 2026 retirement contributions, the critical deadlines are:
- December 31, 2026: Last day to establish a new Solo 401(k) for 2026 contributions; also the last day to make employee elective deferral elections for the 2026 plan year
- April 15, 2027: Deadline to fund employer profit-sharing contributions to a Solo 401(k) or SEP-IRA without an extension (calendar-year filers)
- October 15, 2027: Extended deadline for both employer Solo 401(k) profit-sharing contributions and SEP-IRA establishment and funding (with a valid extension on the 2026 return)
- July 31, 2027: Form 5500-EZ due for Solo 401(k) plans with assets over $250,000 as of December 31, 2026
Have questions about which self-employed retirement plan fits your situation? Contact TS CPA for a free consultation. We respond within the same day.