Business · 5 min read · Updated November 10, 2026

SEP, SIMPLE and Solo 401(k) compared for 2026

Illustrative examples, education not advice.

In plain words

If you own a small business or work for yourself, you can set up your own retirement plan. Three are popular because they are simpler and cheaper than a traditional company 401(k):

SEP IRA: only the employer contributes, as a percentage of pay. Very simple.
SIMPLE IRA: employees, including you, can defer salary, and the employer must add a match or a fixed contribution. Built for businesses with up to 100 employees.
Solo 401(k): a 401(k) for an owner with no employees other than a spouse. You contribute both as the “employee” and the “employer,” which often allows the most savings at moderate incomes.

The 2026 numbers

	SEP IRA	SIMPLE IRA	Solo 401(k)
Employee deferral	None	$17,000 ($18,100 in some plans)	$24,500
Catch-up, age 50+	None	$4,000 ($3,850 in some plans)	$8,000
Catch-up, ages 60–63	None	$5,250	$11,250
Employer contribution	Up to 25% of pay	3% match or 2% of pay for everyone	Up to 25% of pay (about 20% of net self-employment earnings for sole proprietors)
Total cap, before catch-ups	$72,000	Deferral plus employer amount	$72,000
Pay counted, maximum	$360,000	$360,000 for the 2% option	$360,000
Roth option	Allowed by law; depends on provider	Allowed by law; depends on provider	Often available
Covers employees	Yes, equal percentage to eligible staff	Yes	No (owner and spouse only)

Source: IRS 2026 limits. The higher SIMPLE limits apply to certain plans, such as those at employers with 25 or fewer employees.

How it helps real people

Cuts taxes now. Traditional contributions are generally deductible, lowering this year’s tax bill.
Builds retirement wealth for owners who have no workplace plan.
Helps attract and keep staff, in the case of SEP and SIMPLE plans.
Tax credits. Small employers that start a new plan for employees may qualify for a startup tax credit of up to $5,000 a year for three years, plus $500 a year for adding auto-enrollment.

A worked example

Illustrative. Three fictional owners, each 45, each with $120,000 of net business earnings, compare plans.

	SEP IRA	SIMPLE IRA	Solo 401(k)
Sam (sole proprietor, no staff)	About $22,300 (20% of net earnings after half of SE tax)	$17,000 + 3% match ≈ $20,300	$24,500 + about $22,300 ≈ $46,800

For Sam, the Solo 401(k) allows roughly twice as much as either IRA plan at this income.

Now consider Jade, who has four employees. A Solo 401(k) is not an option. A SEP would require her to give each eligible employee the same percentage of pay she gives herself. A SIMPLE IRA lets everyone defer their own pay, with a 3% match from Jade. She chooses the SIMPLE because it costs her less and her staff can save for themselves.

These figures are illustrative only. Exact amounts depend on how earnings are calculated for your entity.

Who it’s for

SEP IRA: self-employed people or very small businesses wanting the simplest plan, often with variable profit. Contributions can change each year.
SIMPLE IRA: businesses with employees that want a low-cost plan where staff can save from their own pay.
Solo 401(k): owners with no employees except a spouse, who want to save as much as possible, or want a Roth option or plan loans.

Who it’s not for

SEP: businesses with many long-time employees, since you must contribute the same percentage for them.
SIMPLE: owners who want to save more than the SIMPLE limits, or who already have another plan. A SIMPLE IRA generally must be the only plan the employer offers that year.
Solo 401(k): businesses that hire, or expect to hire, eligible employees. Once you have them, the plan must change.
Owners wanting to save well beyond $72,000 a year may look at a cash balance plan instead.

Risks and trade-offs

Deadlines differ. A new SIMPLE IRA generally must be set up by October 1 for that year. SEPs and Solo 401(k)s have more flexible setup deadlines. Check current rules.
SIMPLE early withdrawal penalty. Withdrawals in the first two years of participation can face a 25% additional tax instead of the usual 10%.
Solo 401(k) paperwork. Plans with more than $250,000 in assets generally must file an annual Form 5500-EZ.
High earner catch-ups. From 2026, workplace 401(k) catch-ups for people whose prior-year wages from the employer exceeded $150,000 must generally go in as Roth. This does not apply to SEP or SIMPLE IRAs.
Cash flow. Committing to a match means paying it even in a slow year, in the case of a SIMPLE.

Common mistakes

Choosing a SEP when a Solo 401(k) would allow far more at moderate incomes.
Opening a Solo 401(k), then hiring without adjusting the plan.
Miscalculating self-employed contributions, which are based on net earnings after half of self-employment tax.
Exceeding the combined deferral limit if you also have a 401(k) at another job. The $24,500 deferral limit is per person, not per plan.
Missing the SIMPLE notice and setup deadlines.

FAQs

Can I have a SEP and a Solo 401(k)?

It is possible in some cases, but it is complicated and often unnecessary. Many owners choose one.

Can my spouse join my Solo 401(k)?

Yes, if your spouse works in the business and earns pay, they can contribute too, which can double the household’s savings.

Do these plans offer Roth contributions?

The law now allows Roth contributions to SEP and SIMPLE IRAs, but not every provider offers them. Solo 401(k)s often do.

Can I switch plans later?

Yes. Many owners start with a SEP or Solo 401(k) and move to a full 401(k) as the business grows.

Your next step

Ask VeraLife (/#ask) to compare what each plan would let you contribute based on your business income and staff.

Education, not advice. Examples are illustrative. VeraLife.ai is not a registered investment adviser, broker-dealer or insurance agency.