SEP IRA vs SIMPLE IRA vs Solo 401(k): Which One Fits Your Business?

The short answer

• Self-employed, no employees, save the most: Solo 401(k).
• Self-employed, want the simplest setup: SEP IRA.
• A small team, low cost, employees fund their own: SIMPLE IRA.
• Owner-heavy business, big deduction: SEP IRA, or graduate to a 401(k) with profit sharing.

The differences are not academic. At the same income, the plan you pick can change how much you shelter by tens of thousands of dollars a year.

How much can each plan save at the same income?

Take a self-employed consultant, age 45, with about $150,000 of net self-employment income and no employees. Here is roughly what each plan lets that person set aside in 2026:

Hypothetical illustration only, not a projection of actual results. Figures assume the stated inputs and returns, which are not guaranteed; your outcome depends on your contributions, investment returns, tax rates, and time horizon. Past performance does not guarantee future results.

Same person, same income, and the Solo 401(k) sets aside roughly $24,000 more than the SEP. The reason is structural, covered next. You can also compare all three plans against your own income, or model what a balance grows to over time.

Who funds it, and what it costs you

This is the real dividing line. A SEP IRA is funded entirely by the employer, up to 25% of pay. Simple to run, but if you have employees you must contribute the same percentage for each of them. A SIMPLE IRA lets employees defer their own pay, and you as the employer add a required match (3%) or a 2% nonelective contribution. A Solo 401(k) lets you wear both hats: you defer as the employee and contribute as the employer, which is why it reaches the highest number for an owner-only business.

The moment employees change the answer

The Solo 401(k) is only for an owner-only business. The day you hire a non-owner, non-spouse employee who meets the eligibility rules, it has to become a regular 401(k). A SEP still works with employees, but the equal-percentage rule means funding your own account also funds everyone else's at the same rate, which is why owner-heavy businesses like it and labor-heavy ones do not. A SIMPLE IRA is the low-cost middle ground for a small team, up to 100 employees.

If you are the sole owner today and want the deepest look at the plan that saves the most, read the Solo 401(k) deep dive. If you already have a team and expect to cross 100 participants, the 100-participant audit rule is the next thing to understand.

How to actually choose

Start with headcount, then savings goal, then administrative appetite. Owner-only and want the max: Solo 401(k). Owner-only and want zero paperwork: SEP. A few employees and want low cost: SIMPLE. Growing past a handful of employees or chasing a large deduction: move toward a 401(k). I walk owners through this on the small business retirement plans page, then set the plan up and run it.

For the source rules, the IRS keeps plain pages on SEP plans, SIMPLE IRA plans, and one-participant 401(k) plans.