SEP-IRA vs Solo 401(k): Which Is Better for Freelancers?

If you’re a freelancer choosing between a SEP-IRA and a solo 401(k), the short answer is: for most high-earning freelancers, the solo 401(k) wins. But the details matter, and there are situations where the SEP-IRA is the right call.

Here’s the full comparison.

The Basics

Both accounts are designed for self-employed people and small business owners. Both offer tax-deferred growth. Both have contribution limits tied to your self-employment income.

SEP-IRA (Simplified Employee Pension)

• Contributions: up to 25% of net self-employment income
• 2024 maximum: $69,000
• Employee contributions: employer-only (you contribute as the “employer”)
• Roth option: No
• Setup: Simple, available at any brokerage

Solo 401(k)

• Contributions: employee portion (up to $23,000 in 2024, or $30,500 if 50+) PLUS employer portion (up to 25% of net SE income)
• 2024 maximum: $69,000 (same cap, but you get there faster)
• Roth option: Yes, on the employee contribution portion
• Setup: Slightly more paperwork; most major brokerages offer it

Why the Solo 401(k) Usually Wins

The key advantage is that the solo 401(k) has two contribution buckets — employee and employer — while the SEP-IRA only has one.

This matters most at lower income levels. At $60k net SE income:

• SEP-IRA max: $60k × 25% = $15,000
• Solo 401(k) max: $23,000 (employee) + ~$11,000 (employer) = $34,000

The solo 401(k) lets you shelter more than twice as much income at $60k earnings. At higher incomes, both accounts eventually hit the same $69,000 ceiling — but the solo 401(k) gets there at a lower income level.

When the SEP-IRA Makes More Sense

You have employees. A solo 401(k) is only available if you have no full-time employees other than a spouse. The moment you hire a W-2 employee, you lose solo 401(k) eligibility. The SEP-IRA can cover employees.

You want simplicity. A SEP-IRA can be opened in 15 minutes at Fidelity or Vanguard with minimal paperwork. The solo 401(k) requires adopting a plan document and, if your balance exceeds $250,000, filing Form 5500-EZ annually.

You’re in a high-income year with variable earnings. SEP-IRA contributions can be made up until the tax filing deadline (including extensions). Solo 401(k) employee contributions must be elected by December 31 of the tax year.

The Roth Solo 401(k) Option

Many solo 401(k) plans let you designate employee contributions as Roth — meaning you pay taxes now and withdrawals in retirement are tax-free. This is a meaningful advantage if you expect to be in a higher tax bracket later, or if you want tax diversification.

The SEP-IRA has no Roth option.

Which Brokerage

For solo 401(k): Fidelity’s self-employed 401(k) has no fees and good investment options. Vanguard’s individual 401(k) is also solid. Avoid plans with high annual maintenance fees.

For SEP-IRA: Any brokerage works. Fidelity, Vanguard, Schwab — same funds, same experience.

If you’re self-employed with no employees and earn more than $50k/year, open a solo 401(k) before year-end. The employee contribution election has to happen by December 31, even if you don’t fund it until April. Set it up now so the option is available when you need it.