The 2026 contribution limit for a Solo 401(k) rose to $70,000 for participants under 50 and $77,500 with the catch-up provision for ages 50-59. The Solo 401(k) splits this between an employee deferral ($23,500 for under-50s, increased COLA on the SECURE 2.0 path) and an employer-side profit-sharing contribution (up to 25% of net self-employment income). For a self-employed man earning $200,000 in net business income, this means the entire $70,000 can be deferred — versus approximately $50,000 in a SEP IRA at the same income level.
Why SEP IRAs are losing the comparison
A SEP IRA is simpler but offers only the employer-side contribution. There is no employee deferral. So at $200,000 net self-employment income, the SEP cap is 25% × $200,000 = $50,000. The Solo 401(k) at the same income gets the $23,500 deferral on top of the 25% profit share, for the full $70,000.
The gap matters most at the $150,000 to $300,000 net income range — exactly where most successful single-person businesses sit. Above that, both vehicles are limited by the overall annual addition cap. Below $90,000 in net income, the gap narrows because the 25% employer side does not by itself reach the limits.
The Roth Solo 401(k) option
From 2024 onward, Solo 401(k) plans allow Roth treatment on the employer profit-sharing portion in addition to the employee deferral. This was the SECURE 2.0 change that almost no media covered properly. The practical effect: a self-employed man with current high earnings but anticipated lower retirement income can choose pre-tax; a man with growing earnings and expectations of higher retirement income (because of a future business sale) can put the entire $70,000 into Roth — meaning $70,000 a year of growth comes out tax-free for life.
The December 31 deadline trap
A Solo 401(k) must be established by 31 December of the tax year for which you want to make a deferral. Contributions can be funded later (up to the tax filing deadline), but the plan itself must legally exist by year-end. SEP IRAs, by contrast, can be opened and funded retroactively up to 15 April or extended deadline. Many self-employed men miss the December cutoff and default to SEP for the prior year — losing the $20,000+ Solo advantage they would have had if they had opened the plan a week earlier.
What to actually do this month
If you are self-employed and currently use a SEP IRA, and your net business income exceeds $90,000, open a Solo 401(k) at Fidelity, Schwab or E*TRADE this week (zero-fee plans, online setup in 40 minutes). Run both plans in parallel for 2026 — you can fund either up to your individual limits — and migrate fully to the Solo 401(k) for 2027. Most platforms allow rollover of SEP balances into Solo 401(k) plans at any time without tax consequence.