For a self-employed Florida household, SEP IRA vs Solo 401k usually comes down to two things: how much you want to put away this year, and whether you expect to hire anyone. A Solo 401(k) lets you contribute in two roles, as employee and as employer, so at ordinary self-employment income it makes room a SEP-IRA can’t. A SEP-IRA gives up the employee side entirely, and gets something back for it: you can still open one after the tax year has ended. This article is not tax, legal, or investment advice, and nothing here replaces a conversation with a Florida-licensed planner or CPA about your own accounts.
How does SEP IRA vs Solo 401k work?
The Solo 401(k) provides two contribution roles, while the SEP-IRA provides one. The IRS describes a Solo 401(k) owner as wearing two hats: employee and employer.
The IRS calls it a one-participant 401(k), and describes it as a traditional 401(k) plan covering a business owner with no employees, or that person and his or her spouse. The owner makes employee elective deferrals and an employer contribution into the same plan.
A SEP-IRA is funded through employer contributions only. It doesn’t provide employee elective deferrals or catch-up contributions.
That difference drives the decision at lower levels of net earnings. The Solo 401(k)‘s employee contribution can increase available contribution room before the employer calculation begins.
Here is the core comparison for 2026:
| Feature | SEP-IRA | Solo 401(k) |
|---|---|---|
| Contribution roles | Employer only | Employee and employer |
| 2026 employee deferral | None | Up to $24,500 |
| Employer contribution | Based on compensation | Up to 25% of plan-defined compensation |
| Self-employed employer ceiling | 20% of net earnings | 20% of net earnings on the employer side |
| 2026 defined-contribution limit | $72,000 | $72,000, not counting catch-ups |
| Catch-up contributions | None | $8,000 at age 50 or older |
| Ages 60 through 63 | No catch-up | $11,250 instead of the $8,000 catch-up |
| Employee impact | Contributions may be required for eligible employees | Eligible employees end the owner-only structure |
| Confirmed setup advantage | Business return deadline, including extensions | Confirm timing with the provider and a CPA |
The 2026 figures come from IRS Notice 2025-67. Both plans also use a $360,000 compensation limit for 2026.
Our guide to retirement income planning explains how account choices fit a broader retirement strategy.
How much can I actually put in a SEP-IRA?
A self-employed owner’s real ceiling is 20% of net earnings, not the 25% almost every comparison article prints. That gap is the single most useful number in this whole decision.
IRS Publication 560 carries the rule in a footnote to its rate table for the self-employed. The deduction for annual employer contributions (other than elective deferrals) to a SEP plan, a profit-sharing plan, or a money purchase pension plan can’t be more than 20% of your net earnings (figured without deducting contributions for yourself) from the business that has the plan. That footnote covers the SEP and it covers the employer side of a Solo 401(k), which is a profit-sharing contribution.
The publication’s rate table confirms the same result. A plan contribution rate of 25% converts to a 0.200000 rate for a self-employed owner.
This distinction matters because revenue isn’t the contribution base. Net earnings drive the self-employed calculation. A CPA should calculate the available contribution using the business’s actual tax information.
The 2026 SEP participation compensation threshold is $800. An eligible employee must satisfy three cumulative requirements:
- The employee has reached age 21.
- The employee has worked for the employer in at least 3 of the last 5 years.
- The employee received at least the applicable compensation threshold.
An employer may adopt less restrictive participation requirements. It cannot make those requirements more restrictive.
When a SEP contribution is made, it must cover every participant who performed personal services during that year. Most SEPs, including the IRS model Form 5305-SEP, require proportional allocations. Each participant receives the same contribution percentage based on salary or wages.
That turns a hiring decision into a plan decision. Self-employed income patterns in the Odessa and Lutz corridor push a lot of the questions we route toward SEP-IRA and solo plan guidance, often from households whose net worth sits in land rather than accounts. Our Odessa financial planning page covers that local picture.
How much can I put in a Solo 401(k)?
A Solo 401(k) owner may contribute as both employee and employer. The employee side allows elective deferrals up to earned income, subject to the annual limit.
The elective deferral limit is $24,500 for 2026. The employer side permits up to 25% of compensation as defined by the plan. Total core defined-contribution additions are limited to $72,000 for 2026.
Catch-up contributions can increase the Solo 401(k) amount for eligible owners. The 2026 catch-up is $8,000 for someone age 50 or older. Someone age 60 through 63 uses the $11,250 catch-up instead. The two catch-up amounts don’t stack.
The employee deferral is the Solo 401(k)‘s central advantage at modest net earnings. A SEP contribution depends entirely on the employer calculation. A Solo 401(k) can begin with the employee deferral before adding employer money.
A spouse who works in the business can participate too. The plan stays a one-participant plan as long as it covers the owner and that spouse and nobody else.
Households coordinating several accounts may also benefit from our guide to 403(b) and 457(b) plans for Pasco County public employees.
Which plan lets me save more?
The Solo 401(k) can provide more contribution room at lower net earnings. Its employee deferral sits beside the employer contribution rather than replacing it.
At high enough compensation, the plans can reach the same $72,000 core limit. An eligible Solo 401(k) owner may then add the applicable catch-up contribution.
That means neither plan wins at every income level. The answer depends on net earnings, age, other elective deferrals, and hiring plans.
The decision can be summarized this way:
- Lean Solo 401(k) when the employee deferral is what gets you to your number.
- Lean SEP-IRA when you need the later setup window and employer-only funding suits the business.
- Revisit either choice before hiring an employee who may become eligible.
- Coordinate the contribution with the household’s federal tax plan.
Florida has no state income tax. A deductible contribution therefore affects federal taxation rather than a Florida individual income tax bill. Our tax-planning coordination service helps households organize these questions for their tax professional.
What happens if I hire someone?
Hiring can change both plans, but the consequences differ.
A Solo 401(k)‘s no-testing advantage ends when eligible employees enter the business. Employees meeting the plan’s eligibility requirements must join the plan. Their elective deferrals then become subject to nondiscrimination testing.
A SEP follows its own participation and allocation rules. Eligible employees generally receive the same contribution percentage under most SEPs. Contributions must cover participating employees who performed personal services during the year.
The owner should review eligibility rules before adding staff. Waiting until contribution time can expose an obligation that wasn’t included in the hiring budget.
The same review should cover seasonal and part-time workers against the actual plan document. Eligibility depends on the governing rules and each worker’s service history.
Does Florida law change the answer?
Florida law changes the creditor-exemption analysis, but it doesn’t select the plan.
Florida Statute 222.21 provides an exemption for qualifying retirement funds and accounts. The statute says ERISA coverage isn’t required for that Florida exemption. Therefore, the ERISA question raised in national Solo 401(k) comparisons isn’t what decides the Florida statutory exemption.
The rule has two important carve-outs. It doesn’t exempt an account from claims by an alternate payee under a qualified domestic relations order. It also doesn’t exempt the account from a surviving spouse’s claim under an order determining elective share and contribution.
This section doesn’t guarantee a bankruptcy result or complete protection. Bankruptcy, domicile, court orders, and account compliance can change the analysis. Confirm the result with a Florida attorney before relying on the exemption.
Which plan is simpler to run?
The SEP-IRA has a clear timing advantage for late planning. It may be established as late as the business income tax return’s due date, including extensions, for the year involved.
A Solo 401(k) carries a separate annual filing trigger. A one-participant plan generally must file Form 5500-EZ when year-end assets reach $250,000 or more.
Solo 401(k) establishment timing should be confirmed with the provider and a CPA. The answer can depend on the contribution type and applicable plan documents.
Don’t judge the admin question at account opening alone. Employee eligibility, the contribution math, provider costs, and that annual filing all show up later.
An old workplace account may add another decision. Our guide to a 401(k) rollover after a job change explains the questions to review. The 401(k) rollover service covers help available through planners in the network.
Future distribution planning also matters. Our guide to required minimum distributions for Pasco retirees explains that later stage.
Frequently asked questions
Is a SEP-IRA or Solo 401(k) better for self-employed people?
A Solo 401(k) can provide more contribution room at modest net earnings. Its employee deferral is added before considering the employer contribution. A SEP-IRA may fit someone prioritizing employer-only funding and later setup.
Why is the SEP percentage 20% for a sole proprietor?
Self-employed contribution calculations use a reduced rate. IRS Publication 560 limits annual employer contributions to 20% of net earnings for this calculation. The plan’s stated 25% rate converts to 20% for the self-employed owner.
What are the 2026 SEP-IRA and Solo 401(k) limits?
The core defined-contribution limit is $72,000 for 2026. Solo 401(k) employee deferrals are limited to $24,500. Eligible owners may add the applicable $8,000 or $11,250 catch-up, but those catch-ups don’t stack.
Can a Solo 401(k) cover my spouse?
Yes. A one-participant 401(k) may cover the business owner and that person’s spouse. Eligible common-law employees change the owner-only structure and introduce additional plan requirements.
How late can I establish a SEP-IRA?
A SEP may be established by the business return’s due date, including extensions. That timing can help after the year’s business results become clear. Confirm the contribution calculation with a CPA.
Does Florida protect SEP-IRA and Solo 401(k) assets?
Florida’s exemption statute covers qualifying retirement funds without requiring ERISA coverage. The statute still preserves claims involving a QDRO alternate payee and a surviving spouse’s elective share. A Florida attorney should evaluate the account’s specific protection.
Get matched with a planner who works with self-employed households
Wesley Chapel Wealth Pro matches Pasco County households with independent licensed planners. The matching service is free to the household, and we don’t manage money or give investment, tax, or legal advice ourselves.
Call (813) 680-3195 to talk through which plan fits your business.
Before scheduling, review our guide to financial advisor costs.