Both a Solo 401(k) and a SEP IRA can offer substantially more tax-advantaged saving potential than a standard IRA for freelancers and self-employed professionals. For many people with modest-to-middle net self-employment income, the Solo 401(k) is often the stronger choice because it offers more contribution flexibility and can include a Roth option. The right fit still depends on your net self-employment income, tax picture, business structure, and broader financial goals.

If you earn income through freelance work, a creative practice, consulting, or another self-employed business, choosing a retirement account can feel like one more complicated decision on an already full plate. At Artfx Financial Planning, we help people with variable income build a retirement strategy that works alongside the life they want to live now—not against it.

The Simple Difference Between a Solo 401(k) and a SEP IRA

Both accounts are designed for self-employed people. Both can reduce taxable income when you make traditional, pre-tax contributions. And both can help you save far more than you generally could in a standard IRA.

The key difference is how contributions are made. A SEP IRA treats you as the employer making a contribution for yourself. A Solo 401(k) lets you contribute in two roles: as the employee and as the employer. That second structure is why a Solo 401(k) can be especially helpful when income is not extremely high.

A Solo 401(k) is generally available when you have no eligible common-law employees other than a spouse. A SEP IRA can be easier to use if your business has—or may soon have—eligible employees, although that comes with important employer-contribution obligations.

How 2025 Contribution Limits Work

Retirement-plan contribution limits change over time, and the exact amount you can contribute is based on your compensation, age, business structure, and the type of contribution. For the 2025 tax year, the IRS sets an employee-deferral limit for 401(k) plans, an overall limit for defined-contribution plans, and a separate maximum for SEP IRA contributions. Catch-up provisions may also apply for eligible savers.

For a SEP IRA, your contribution is generally based on a percentage of eligible compensation. If you are self-employed, the calculation is not as simple as taking a percentage of your gross revenue. Your net self-employment income and the deduction for self-employment tax affect the amount available.

For a Solo 401(k), the employee portion can create an important advantage. You may be able to make an employee deferral first, then add an employer contribution based on eligible compensation. In a lower-income year, that structure can sometimes allow you to save more than a SEP IRA would allow at the same income level.

Because the calculation can be surprisingly technical, it is worth reviewing the current IRS rules before funding either account. Artfx Financial Planning can help you connect the contribution decision to your overall spending strategy, taxes, and irregular-income plan.

Why the Solo 401(k) Often Helps at Modest-to-Middle Income Levels

Imagine two freelancers with the same net income. With a SEP IRA, each person is limited to the employer-style contribution formula. With a Solo 401(k), each person may have access to both the employee and employer sides of the plan.

That does not automatically make the Solo 401(k) better for everyone. But it often means the Solo 401(k) can help you put away a meaningful amount even before your income reaches a higher level. This can be useful for freelancers, performers, consultants, and independent contractors whose revenue rises and falls from year to year.

It also gives you a clearer decision point during a strong year: you can evaluate what you want to contribute as an employee and what the business can contribute as the employer, rather than relying on one formula alone.

Roth Options: A Major Solo 401(k) Advantage

Traditional contributions may reduce taxes today, while Roth contributions are made with money that has already been taxed and may provide tax-free qualified withdrawals later. Neither approach is universally “better.” The right choice depends on your current tax rate, expected future tax situation, cash flow, and retirement-income plan.

A Solo 401(k) can offer a Roth employee-contribution feature when the plan provider supports it. This is a meaningful advantage for freelancers who want tax flexibility and expect their income or tax rate to rise over time.

SEP IRAs have historically been traditional accounts. Roth SEP contributions are now permitted under federal rules, but availability depends on the plan arrangement and provider. In practice, the Roth path is often more straightforward and widely available through a Solo 401(k). If Roth saving is important to you, ask specifically whether the account provider supports the features you want before opening an account.

Administrative Requirements and Ongoing Work

A SEP IRA is usually the simpler account to open and maintain. It generally involves less plan administration and may be a practical fit if simplicity is your top priority.

A Solo 401(k) takes more setup work. You need a formal plan document, and you must keep track of employee and employer contributions correctly. Once plan assets cross the IRS filing threshold, an annual information return is generally required. The added effort is real, but many self-employed professionals decide the flexibility is worth it.

If you hire eligible employees, the decision changes quickly. A SEP IRA generally requires you to make contributions for eligible employees using the same contribution percentage used for yourself. A Solo 401(k) is intended for an owner-only business, with a spouse as the usual exception. Before hiring, revisit your retirement-plan design.

A Simple Framework for Choosing

• Choose a Solo 401(k) if: You have no eligible employees, want the potential to save more at modest-to-middle income levels, value a Roth option, or want added flexibility in strong-income years.
• Consider a SEP IRA if: You want the simplest administration, prefer an employer-style contribution approach, or anticipate a business structure where a Solo 401(k) will not be appropriate.
• Pause before choosing either if: You may hire employees soon, your income is especially uneven, you are deciding between traditional and Roth contributions, or you need to coordinate retirement saving with debt, taxes, insurance, or other goals.

FAQ

Can I have a Solo 401(k) if I also work a regular job?

Often, yes. A workplace retirement plan does not necessarily prevent you from opening a Solo 401(k) for self-employment income. However, employee-deferral limits are shared across applicable plans, so coordination matters.

Can I switch from a SEP IRA to a Solo 401(k)?

Many people can open a Solo 401(k) in a later year if they qualify. Whether it makes sense to move existing SEP IRA assets depends on the plan, provider rules, and your larger tax strategy.

Is a Roth Solo 401(k) always better than a traditional Solo 401(k)?

No. Roth contributions can be valuable, but traditional contributions may be more helpful when your current tax rate is higher or when managing present-day cash flow is the priority.

What if my freelance income is irregular?

Irregular income is exactly why planning ahead matters. Rather than treating retirement saving as an afterthought, build it into a flexible spending strategy that accounts for high- and low-income periods.

Do I need professional help to open one of these accounts?

You can open an account on your own, but a personalized recommendation should be based on net self-employment income, your business structure, tax considerations, and broader financial goals. That is especially true when your income varies or you are balancing several priorities at once.

For more guidance, explore Solo 401(k) Setup and Income Planning for the Self-Employed. If you are a freelancer or self-employed professional in Salt Lake City, Utah—or working virtually from elsewhere—schedule a consultation with CFP® Kirsten Chavez at Artfx Financial Planning to build a retirement-saving approach that fits your real life.