When you work for yourself, retirement stops being a form you fill in during your first week and becomes a decision nobody will ever prompt you to make. There is no enrollment, no match, no default. If it does not occur to you, it does not happen.

The compensation is that the ceilings are extraordinary. An employee with a good 401(k) can put away $24,500 of their own money in 2026. A self-employed person with the same plan can reach $72,000 in total contributions, because they are allowed to contribute as both the employee and the employer.

A couple in their early sixties sitting on the front porch steps of a modest wooden house with coffee mugs, talking quietly in early morning light.
None of what follows is complicated. It is three products, a handful of numbers, and one decision nobody will ever prompt you to make — which is the only reason it so often goes unmade.

The three options, in one breath

An IRA — traditional or Roth — takes $7,500 in 2026, or $8,600 if you are 50 or over. Anyone with earned income can open one in about ten minutes. It is the floor, not the plan.

A SEP-IRA is an employer contribution only, calculated as a percentage of your compensation, subject to the same overall $72,000 ceiling. Simple to run, no annual filing at any size, and you can open and fund one right up to your filing deadline including extensions — which makes it the one you can still set up after the year has ended.

A Solo 401(k) lets you wear both hats. As the employee you defer up to $24,500. As the employer you add a percentage on top. Total contributions to the plan cannot exceed $72,000 for 2026, not counting catch-up.

Why the Solo 401(k) usually wins, and it is not close

Read only the headline caps and the SEP and the Solo 401(k) look identical: both stop at $72,000. That equivalence is real only for people earning enough to reach it, and almost nobody reading this is.

The difference is structural. A SEP is a percentage from the first dollar. A Solo 401(k) is a flat amount and then a percentage. At $50,000 of net earnings a percentage of your income is a modest number, and a flat $24,500 is most of the way to half your earnings.

The shape of the two plans, 2026

Bar length is the ceiling. What matters is which part is flat and which part scales.

IRA $7,500 — flat, whatever you earn SEP-IRA ALL PERCENTAGE — REACHES $72,000 ONLY AT HIGH INCOME SOLO 401(K) $24,500 FLAT DEFERRAL THEN A PERCENTAGE, TO THE SAME $72,000 SOLID — AVAILABLE REGARDLESS OF INCOME · FADED — DEPENDS ENTIRELY ON EARNINGS
The caps are the same; the shape is not. Below roughly six figures of net earnings the flat deferral is doing almost all of the work, which is the whole argument for the extra paperwork a Solo 401(k) brings.

The cost of that advantage is real but small: a Solo 401(k) has to be established before the year ends, where a SEP can be opened after it. Miss December and the SEP is the only door still open.

What “compensation” actually means, and why nobody quotes you a rate

This is where the confident advice on the internet quietly falls over.

The employer percentage is not a percentage of your revenue, and it is not a percentage of your net profit either. The IRS defines your compensation as earned income: net earnings from self-employment after deducting both one half of your self-employment tax and the contributions you make for yourself.

Read that second one again. The contribution depends on the compensation, and the compensation depends on the contribution. It is circular, which is exactly why the IRS publishes a rate table and worksheets in Chapter 5 of Publication 560 rather than a single number. Anyone who gives you one flat percentage is giving you an approximation, and near the ceiling the approximation is where the mistake lives.

The plan is easy. The arithmetic is the hard part, and it is the part everyone skips.

Catch-up, and the window at 60

From the year you turn 50 you can add $8,000 of catch-up on top of the deferral limit. But under SECURE 2.0 there is a larger allowance for a narrow band: for ages 60, 61, 62 and 63 the catch-up is $11,250 in 2026 instead of $8,000.

It is a four-year window and it closes at 64. If you are in it or approaching it, that is worth a calendar note rather than a vague intention, because it is the only provision here that expires by age rather than by year.

The threshold nobody warns you about

A Solo 401(k) is famously light on admin, and it is — until it isn’t.

A one-participant plan generally has to file Form 5500-EZ once it holds $250,000 or more at the end of the year. Below that it is usually exempt, which is why the requirement is so easy to miss: nothing changes, no one writes to you, and the balance crosses the line during a good year when you are thinking about anything else.

The form itself is not difficult. Discovering several years late that you owed it is a different experience, and the IRS runs a penalty relief program for late 5500-EZ filers precisely because so many people find out this way.

A woman in her late sixties working at a potter's wheel in her own small studio, sleeves rolled, absorbed in the work, afternoon light through a side window.
For a lot of self-employed people this is what the later years actually look like: less work, chosen work, on their own calendar. It is a genuine advantage — and the reason it is dangerous is that a taper feels like a plan when it is a hope with no numbers attached.

Retirement, for people whose work is not a place

One honest observation that does not appear in the employee version of this article. For a lot of self-employed people, retirement is not a cliff. It is a taper — fewer clients, better ones, more control over the calendar — because the work was never somewhere you went and can be dialled down rather than switched off.

That changes the arithmetic in your favor more than any plan choice does. It also makes it easier to under-save, because a taper feels like a plan when it is really a hope with no numbers attached. Both things are true at once, and the useful response is to save as if you were stopping cleanly and treat the taper as upside.

What to do this week

  1. Open something. If nothing exists, an IRA takes ten minutes and puts $7,500 of 2026 on the table.
  2. If you have profit to shelter, price the two plans properly — using the Publication 560 worksheet rather than a blog’s flat percentage.
  3. If you want a Solo 401(k) for this year, establish it before December 31. Funding can come later; the plan existing cannot.
  4. Set the contribution as a percentage of each payment, in the same motion as the tax set-aside. Annual intentions do not survive an irregular year; percentages do.

And check the balance once a year against $250,000. Not because it is urgent, but because it is the one number in here that changes what you owe the IRS in paperwork rather than money.

Questions, answered

How much can a self-employed person put into retirement in 2026?

Into an IRA, $7,500, or $8,600 if you are 50 or over. Into a Solo 401(k), you can defer up to $24,500 as the employee and add an employer contribution on top, with total contributions to that plan capped at $72,000 for 2026, not counting catch-up. Age 50 and over adds $8,000 of catch-up, and ages 60 to 63 get $11,250 instead under a SECURE 2.0 provision.

Solo 401(k) or SEP-IRA?

At high income they converge, because both are eventually limited by the same $72,000 overall cap. At modest income the Solo 401(k) usually wins by a wide margin, because its first $24,500 is a flat elective deferral rather than a percentage of earnings. A SEP is a percentage from the first dollar, so at $50,000 of net earnings a SEP gives you a fraction of what a Solo 401(k) would. The SEP’s advantage is simplicity: no annual filing at any size, and you can open and fund one right up to your filing deadline including extensions.

What counts as my compensation for the employer contribution?

Not revenue, and not quite net profit either. The IRS defines it as your earned income: net earnings from self-employment after deducting both one half of your self-employment tax and the contributions you make for yourself. That last part is circular, which is why the IRS publishes a rate table and worksheets in Chapter 5 of Publication 560 rather than a single percentage. Anyone quoting you a flat rate is approximating.

Do I have to file anything for a Solo 401(k)?

Not at first. A one-participant 401(k) is generally required to file Form 5500-EZ once the plan has $250,000 or more in assets at the end of the year; below that it is usually exempt. It is a straightforward annual form, but the threshold arrives quietly, and the penalties for years of missed filings are the sort of thing that ruins a week.

Sources

  1. Retirement topics — 401(k) and profit-sharing plan contribution limits — Internal Revenue Service. The 2026 figures used throughout: $24,500 elective deferral, $8,000 catch-up, $11,250 for ages 60–63, $72,000 overall limit, $360,000 compensation cap.
  2. Retirement topics — IRA contribution limits — Internal Revenue Service. The 2026 IRA limit of $7,500, or $8,600 for age 50 and over.
  3. One-participant 401(k) plans — Internal Revenue Service. How the two-hats structure works, the definition of earned income for the self-employed, and the Form 5500-EZ threshold at $250,000.
  4. Publication 560, Retirement Plans for Small Business — Internal Revenue Service. The rate table and worksheets in Chapter 5 for computing your own allowable contribution.
  5. Simplified Employee Pension plan (SEP) — Internal Revenue Service. SEP rules and how they differ from a one-participant 401(k).

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General information, not tax or investment advice. Contribution limits change every year and the computation for a self-employed person is genuinely circular — use the worksheets in Publication 560 or ask whoever prepares your return before making a contribution near the cap. Nothing here is a recommendation about what to invest in.