SEP IRA and Solo 401(k)
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Solo 401(k)? SEP IRA? Let’s break it down.
These are the two main retirement options that typically offer the most tax advantages. Here are the key differences:
Solo 401(k)
$49/month base fee + 0.15%/year
Just like a regular 401(k), but without the complexity of testing. You can contribute as both employer and employee, take out loans, and qualify for up to $500 in tax credits the first three years.1,2,3SEP IRA
$8/month base fee + 0.08%/year
Higher contribution limits than a traditional IRA, but missing key advantages of a Solo 401(k), like employee contributions and loans. Can be a solid option for those just starting their self-employed journey.1,2
How Guideline’s Solo 401(k) and SEP IRA stack up
Solo 401(k)
SEP IRA
- Contribution limits$70,0004$70,0004
- Pre- and post-tax contribution optionsYesNo
- Catch-up contributions for savers over 50YesUp to $7,500 or $11,250/year4No
- Contribute as employerYesYes
- Contribute as employeeYesNo
- Expert-built portfoliosYesYes
- Easy admin and automated complianceYesN/A
- Scales to standard 401(k)YesNo
- Loans availableYesNo
- Tax credits availableYes3Yes3
- Mega backdoor Roth eligibleYesN/A
- Automated compliance
- 100% digital contributions
- Easy plan admin
- Hands-free IRS filings5
We made the Solo 401(k) way more accessible
Just because you work for yourself doesn’t mean you want to work forever. Guideline takes care of the hard parts of a Solo 401(k) with automated compliance, digital contributions, IRS form prep, and much more—all at no extra cost. Because we want you to retire, too.
Open a Solo 401(k)
Solo 401(k): The Guideline difference
Seamless admin
Unlike other providers, we handle compliance, recordkeeping, investments, required IRS form prep, and more. You sit back and relax.No junk fees
We automated the middle man to maximize your savings. Our managed portfolios have up to 6x lower fees than the industry average.6Award-winning support
With a 93% customer satisfaction rating, you get the care you need.7,8 Live English or Spanish support by email and phone.
Joshua B.BERK Labs
Guideline’s value is visible in everything I don’t have to do. No endless email threads. No untangling issues. No 401(k) stress.Client of Guideline. Views may not be representative of other clients.
60K+
businesses9
1M+
savers10
$15B+
Invested for retirement11
Innovation by Design Award 202412
Frequently asked questions
Who is eligible for a Solo 401(k)?
Any business, partnership, or sole proprietorship is eligible to open a Solo 401(k) plan, provided only owners, partners, or spouses will be eligible to participate in the plan.
While an entity sponsoring a Solo 401(k) can have common-law employees, they must not be eligible for the plan based on the eligibility requirements in the plan document. Allowable eligibility requirements will be discussed here.
It is also important to note that if you are part of a controlled or affiliated service group, you are not able to open a Solo 401(k) plan at Guideline. Legally related groups must be in Starter or Enterprise plans.
Open a Solo 401(k)
Who is eligible for a SEP IRA?
The IRS has deemed the following employees eligible for participation in a Simplified Employee Pension (SEP) IRA plan (can be set lower):
- At least 21 years of age
- Has worked for the employer in at least 3 of the last 5 years
- Received a minimum of $600 in compensation from the employer during the year
Learn more
Can I contribute to a Solo 401(k) and a SEP IRA at the same time?
It depends. In theory contribute to both a Solo 401(k) and a SEP IRA in the same year, and even max out both contribution limits.
If the plans are from two unrelated companies there are no issues with participating in both. For example, you participate in a SEP plan through your employer and then open and contribute to a Solo 401(k) for your own business.
If you only have one business, and you contributed to SEP IRA that was created using a Form 5305-SEP (as is the case with a Guideline SEP IRA), then you will not be able to maintain any other qualified plan, like a Solo 401(k) in that year.
Can I convert a SEP IRA to a Solo 401(k)?
While you cannot convert a SEP IRA to a 401(k), you can consolidate by rolling over your SEP IRA balance into a Solo 401(k). Once you establish a new Solo 401(k) account with your provider of choice you can request a rollover from the organization holding your SEP IRA. Once you initiate and complete the rollover, your SEP IRA funds will be in your solo 401(k) moving forward.
Can I rollover funds from my IRA or former employer’s 401(k) into a Solo 401(k)?
Yes, you can roll over almost all retirement account types into a Solo 401(k), with some exceptions. You can’t initiate a rollover of an active 401(k) unless you are eligible for an in-service distribution. You also cannot roll a Roth IRA over into a Solo 401(k), according to IRS guidelines.
What’s the difference between employee and employer contributions for a Solo 401(k) and SEP IRA if you’re self-employed?
You can contribute as both an employer and an employee for a Solo 401(k), up to $23,500 as employee and up to $46,500 as employer, for a total of $70,000. If you’re over 50, then you can make additional catch-up contributions up to $7,500 or $11,250 (depending on your age) per year.4
For SEP IRA, you can only contribute as an employer (20% of annual income for business or 25% of annual income for self-employment work, up to $70,000. There are no catch-up contributions with a SEP IRA.4
Open a Solo 401(k)
Perfect for savers who want access to more features and tax credits. You could get set up with a Solo 401(k) in as little as 9 minutes.Get startedQuestions about SEP IRAs?
A great option for savers who only need basic features and don’t anticipate expanding their business. Visit our dedicated page that tells you everything you need to know.Learn more