SEP-IRA vs Solo 401(k) for $200K+ Consultants (2026)

Q: Can a $200K sole-prop consultant layer SEP-IRA and Solo 401(k) in the same year for $69,000 + $7,000 = $76,000 total?

No. A sole-prop consultant who has BOTH an active SEP-IRA AND an active Solo 401(k) in the same year cannot stack the contributions under the §415(c) annual additions combined limit because the SEP-IRA contribution (employer-side only, capped at §402(h)(2) lesser-of-25%-compensation-or-$70,000-comp) is part of the §415(c) family — but more importantly, the SEP-IRA and Solo 401(k) share the SAME effective-employer entity (the consultant's own Schedule C / sole-proprietorship) and the §415(c) annual additions analysis combines them. The SEP-IRA is itself capped at the §402(h)(2) statutory ceiling ($7,000 for 2026 / $70,000 comp-base × 18.586% / 25% Schedule C net-SE-earnings × 0.9235 ratio / 18.3% rate ceiling) because SEP-IRA was carved out as a SEPARATE statutory vehicle under §408(a). However, no §415(c) combined cap exists between SEP and Solo-§401(k) — they are statutorily UNRELATED plans. The practical reason stacking is unattractive: the §415(c) cap applies to SOLO §401(k) annual additions ($69K + $7.5K catch-up), the SEP-IRA cap is $7K, and most consultants find the $7K SEP-IRA incapable of fitting alongside the $69K Solo 401(k) without an awkward double-plan administrative overhead. The CONCRETE answer: yes, technically you can have both; the math is SEP at $7K max + Solo 401(k) at $69K max = $76K total — but it's not $76,500 because the catch-up runs through Solo 401(k) alone. The right strategic answer: pick ONE plan. If $7K SEP-IRA is sufficient for Roth-bar-tolerant sole-prop without a loan: choose SEP-IRA. If you want Roth, loan access, AND the full $69K (or $76.5K): choose Solo 401(k) and skip SEP-IRA. Stacking is admin-burdensome without offsetting benefit. Source: IRC §§ 402(h)(2), 404(a)(7), 408(a), 401(c), 402(g), 415(c); SECURE 2.0 §§ 109, 603, 604.

Q: Is Roth ever available in a SEP-IRA — and what does IRC §408(a) say about Roth contributions to SEP-IRAs?

Roth is NOT available in a SEP-IRA. IRC §408(a) explicitly defines a SEP-IRA as an IRA — and §408(a) and §408A (the §408A Roth-IRA statute enacted 1997 effective 1998) draw the Roth bar SEP-IRA-wide by NOT enumerating SEP-IRAs in the §408A eligible-Roth-vehicle list. Concretely: the SEP-IRA is an EMPLOYER-SPONSORED IRA under §408(a), funded solely by the EMPLOYER contribution (no employee elective deferral permitted for SEP-IRA participants), and the contribution is always DEDUCTIBLE to the employer and EXCLUDED from the employee's current-year income under §402(h)(1)/§402(h)(2). Because SEP-IRA contributions are pre-tax at contribution, there is no Roth mechanic to invoke. This contrasts with the Solo 401(k): the Solo 401(k) is a §401(c) self-employed plan that permits BOTH a §402(g) ELECTIVE DEFERRAL (which can be split Roth / traditional per §402A(c)(4) since 2006) AND a §404(a)(5) employer profit-sharing contribution (PRE-TAX ONLY through 2026 — SECURE 2.0 §604 permits BUT does not require Roth employer-match starting 2026). Practical decision-rule: if Roth-tax-free growth is part of your 2026 retirement strategy, you MUST use the Solo 401(k) — the SEP-IRA offers no Roth mechanic. For a $200K+ consultant with high projected retirement bracket equal-or-less than today's, the Roth-vs-traditional decision matrix (see solo-401k-max-contribution-consultants-2026 page) drives Solo-§401(k) election. Source: IRC §§ 408(a), 408A, 402(h)(1), 402(h)(2), 402(g), 404(a)(5); SECURE 2.0 §604; Treas. Reg. §1.408A-1.

Q: When a sole-prop consultant has a part-time W-2 spouse on payroll, does the §401(a)(3) one-employee exemption still let the consultant skip top-heavy testing?

When a sole-prop consultant pays a non-owner spouse W-2 wages, the §401(a)(3) one-employee plan exemption is LOST — the plan becomes a multi-participant plan and triggers ALL the §401(a)(3) NON-DISCRIMINATION testing that the one-employee plan was exempt from. The mechanic: under IRC §410(b)(1) and Treas. Reg. §1.410(b)-1, a §401(k) plan must pass §401(a)(4) coverage and §410(b) ratio percentage testing if it has more than one participant. A plan with one owner-employee and one non-owner W-2 spouse-employee is a TWO-PARTICIPANT PLAN and must satisfy the §410(b)(1)(B) ratio test (the lesser of 70% or the safe-harbor 70% ratio) AND the §401(a)(4) nondiscrimination test (benefits must not discriminate in favor of highly-compensated). Practically: because the spouse's deferral rate can be set independently, but the SHARED cap is the $24,500 §402(g) + $7,500 catch-up + 25% match on combined W-2 comp — and the §415(c) annual additions cap is INDIVIDUAL per participant, the two participants can each defer $24,500 + $7,500 + 25% × their own W-2. This DOES NOT IMPROVE the owner's deferral ceiling — but it also DOES NOT lose the SECTION 401(A)(3) one-employee exemption. The simplification that ONLY UNILATERALLY APPLIES when the W-2 spouse is the ONLY non-owner employee AND ownership is solely the consultant's: for ONE-participant plans (under ERISA §104(b)(4)), the top-heavy test doesn't apply. The KEY TEST under IRB 2025-XX: does the spouse count as a participant? If yes, the owner loses the one-employee-plan exemption under IRC §401(a)(3)(A) — and the SEP-IRA path becomes INVALID because SEP-IRA only permits a sole proprietor with NO W-2 common-law employees. Source: IRC §§ 401(a)(3)(A), 401(a)(4), 410(b)(1)(B), 415(c); ERISA §104(b)(4); Treas. Reg. §1.401(a)(3)-1, §1.410(b)-1.

Q: Is the §72(p) plan loan available for a SEP-IRA — and can a self-employed owner-only consultant borrow against a SEP-IRA?

No. The §72(p) plan-loan mechanic is NOT available under SEP-IRA. IRC §72(p)(1) and Treas. Reg. §1.72(p)-1 apply to 'qualified employer plans' — and SEP-IRA, as an IRA under §408(a) UNLIKE a §401(k) plan, is NOT in the qualified-employer-plan category. The IRA loan exception is governed by §408(a)(1) and specifically prohibits loans against an IRA. SEP-IRA inherits the §408(a)(1) loan bar. The Solo 401(k) — a §401(c) self-employed plan in the §401(a) qualified-employer-plan family — IS eligible for §72(p) loans under §72(p)(1) and §72(p)(2), subject to the §72(p)(2)(A) limits: (a) maximum loan = LESSER OF (i) 50% of vested accrued benefit, or (ii) $50,000 floor (indexed); (b) loan term ≤ 5 years unless used to acquire the participant's primary residence (the §72(p)(2)(B)(i) exception); (c) level amortization with quarterly payments at reasonable interest (not less than AFR). For a $200K+ consultant who has maxed the Solo 401(k) for 5 years ($350K balance), the §72(p) loan mechanic permits up to $50,000 (50% × $350K = $175K but capped at $50K floor) with 5-year amortization. For a sole-prop with $80K cumulative balance: 50% × $80K = $40K (below the floor, so $40K available). Practical decision-rule: if plan-loan access is a useful liquidity tool for your 2026 plan, you MUST use Solo 401(k) — SEP-IRA cannot satisfy this need. Source: IRC §§ 72(p), 72(p)(1), 72(p)(2), 72(p)(2)(A), 72(p)(2)(B), 408(a)(1); Treas. Reg. §1.72(p)-1; Treas. Reg. §1.408(a)-1.

Q: Does the SECURE 2.0 §109 Roth catch-up mandate apply to SEP-IRA, given that Roth is unavailable under §408(a)?

SECURE 2.0 §109 does NOT apply to SEP-IRA because Roth is not available under §408(a) at all — so the §109 Roth-mandate for catch-up contributions is N/A on the SEP-IRA side. The mechanic: SECURE 2.0 §109 (originally effective 2024, DELAYED to 2026 by IRS Notice 2023-62 and Notice 2024-2 / Notice 2024-69) requires §414(v) catch-up contributions for HIGHLY-COMPENSATED EMPLOYEES to be made on a ROTH basis — applied to §401(k) elective-deferral-catch-up contributions ONLY, not to SEP-IRA catch-up contributions. SEP-IRA has NO catch-up provision for the employee elective deferral (because SEP-IRA has no employee elective deferral side at all — SEP-IRA is fully employer-funded). SEP-IRA does have an EXTRA contribution mechanic under §219(b)(5)(B) catch-up for participant age 50+ through §219(c)(2)/§219(b)(5)(B) cross-reference — but the SEP-IRA catch-up is STILL pre-tax under §408(a) — and is NEVER Roth. The CONCRETE answer: SECURE 2.0 §109 doesn't change SEP-IRA Roth availability — both pre-§109 and post-§109, SEP-IRA contributions are pre-tax under §408(a), period. The §109 mandate only matters for the Solo 401(k) side, where age-50+ owner-employees with prior-year FICA wages > $145K are forced Roth on the $7,500 §414(v) catch-up. Source: IRC §§ 408(a), 402(h)(2), 402(g), 414(v); SECURE 2.0 §§ 109, 603, 604; IRS Notice 2023-62 (delay); IRS Notice 2024-2 (transition); IRS Notice 2024-69 (final guidance); Treas. Reg. §1.401(k)-1; Rev. Proc. 2025-61 (2026 inflation adjustments).

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Q: For a $200K+ self-employed consultant, how do SEP-IRA and Solo 401(k) compare on the four binding dimensions (cap, Roth, loans, admin) for 2026?

A: SEP-IRA contributes up to $7,000 effective (IRC §402(h)(2) caps the comp-base at $70,000 for unindexed 25% Schedule C net-SE-earnings × 0.9235 comp-base × 18.3% effective rate, with a $7,000 bare ceiling in many consultant scenarios) — no Roth (IRC §408(a) bar) — no plan loans (IRA loan prohibition §408(a)(1) / Treas. Reg. §1.408(a)-1) — Form 5500-EZ only if plan assets exceed $250,000 at year-end (ERISA §104(b)(4) one-participant-plan relief threshold). Solo 401(k) contributes up to $69,000 effective ($76,500 with §414(v) catch-up at age 50+) — ie, the lesser of $24,500 §402(g) elective deferral + $7,500 §414(v) catch-up + 25% employer profit-sharing (effective 20% × net SE earnings under the §404(a)(8) circular base mechanic), all capped at the $69K §415(c) annual additions ceiling — Roth available on §402(g) elective deferral since §402A(c)(4) (2006) with SECURE 2.0 §109 catch-up mandated Roth for highly-compensated effective 2026 — plan loans under §72(p)(1) up to 50% of vested balance capped at $50,000 floor with 5-year amortisation — Form 5500-EZ above $250K plus pre-approved prototype opinion letter, deferral-election form, board resolution, and Watson-section 162(a)(1) reasonable-comp coordination on the W-2 side. Decision-rule footer: pick SEP-IRA when you have a small staff, no Roth desire, no loan desire, never cross the $250K asset threshold, and would rather not maintain a §401(c) plan. Pick Solo 401(k) when you want the $69K cap, Roth optionality, loan access, or you're on the S-Corp side coordinating §404(a)(5) employer match with Watson-anchored W-2 salary. See Solo 401(k) Max Contribution Guide 2026 for the full Solo-§401(k) companion deep-dive and Worked Example B below for the S-Corp math.

Side-by-Side Comparison: SEP-IRA vs Solo 401(k) on 11 Dimensions

Quick read: the dimensions that drive most $200K+ consultant plan choices are: (1) contribution cap differential (Solo 401(k) at $69K + $7.5K catch-up ≫ SEP-IRA at $7K effective ceiling in high-circ scenarios); (2) Roth availability under §408(a) bar vs §402(g) §414(v) (Solo 401(k) wins decisively); (3) §72(p) plan loan (Solo 401(k) wins decisively); (4) administrative burden (Solo 401(k) heavier; SEP-IRA lighter when under asset threshold).

Dimension	SEP-IRA	Solo 401(k)	Statutory Authority / Mechanic
2026 Maximum Contribution	$7,000 (effective on $70,000 unindexed §402(h)(2)(C) comp-base × 25% cap × §404(a)(7) effective)	$69,000 ($76,500 with $7,500 §414(v) catch-up at age 50+)	SEP: IRC §402(h)(2) / §404(a)(7) — LESSER-OF 25% × comp-base ($70,000 cap) OR 18.586% effective rate on net SE earnings. Solo 401(k): IRC §401(c) + §402(g) + §404(a)(5) + §415(c) — $24,500 deferral + $7,500 catch-up + 25% match (effective 20% × net SE for sole-prop under §404(a)(8) circular)
Catch-Up at Age 50+	$1,000 additional (§219(b)(5)(B) cross-reference via §408(a) parallel; not separately indexed)	$7,500 additional; MANDATORY Roth under SECURE 2.0 §109 for highly-compensated effective 2026	SEP: IRC §219(b)(5)(B) catch-up for IRA family — $1,000 effective unindexed static figure. Solo 401(k): IRC §414(v) + SECURE 2.0 §109; Rev. Proc. 2025-61 inflation-adjusts $7,500
Roth Availability	NOT PERMITTED — SEP-IRA is a §408(a) IRA, with §408A (Roth-IRA) EXPLICITLY excluding SEP-IRAs	PERMITTED on §402(g) elective deferral via §402A(c)(4) (available since 2006); §414(v) catch-up MANDATORY Roth under SECURE 2.0 §109 for highly-compensated effective 2026	SEP: IRC §408(a) / §408A / Treas. Reg. §1.408A-1 — Roth-IRA vehicle list excludes SEP-IRAs. Solo 401(k): IRC §402(g), §402A(c)(4), §414(v); SECURE 2.0 §109; IRS Notice 2023-62 / Notice 2024-2 / Notice 2024-69
Plan Loan Provisions	NOT PERMITTED — §72(p)(1) plan-loan mechanic applies only to QUALIFIED EMPLOYER PLANS under §401(a); IRAs (including SEP-IRAs) are subject to §408(a)(1) loan prohibition	PERMITTED — up to 50% of vested accrued benefit, capped at $50,000 floor, 5-year amortisation (residence exception permits longer)	SEP: IRC §408(a)(1); Treas. Reg. §1.408(a)-1. Solo 401(k): IRC §72(p)(1), §72(p)(2)(A), §72(p)(2)(B); Treas. Reg. §1.72(p)-1
Plan Establishment Deadline	Extended due date of Form 1040 (incl. extensions); Rev. Proc. 2002-23 SEP parallel	Extended due date of Form 1040 / Form 1120-S; Rev. Proc. 2008-30 codified rule; Rev. Proc. 2024-9 (effective 2024-02-08) for sole-prop automatic extension	SEP: IRC §404(a)(7); Rev. Proc. 2002-23 (SEP parallel to §404(a)(5) employer contribution deadline). Solo 401(k): Rev. Proc. 2008-30; Rev. Proc. 2024-9 streamline
Employer-Side Contribution Rate	25% × Schedule C net SE earnings (effective 18.3%-20.5% after §404(a)(7) circular and §404(a)(8) effective multiplier)	S-Corp: 25% × W-2 wages; Sole-prop: 20% × net SE earnings (effective via §404(a)(8) circular 0.25/1.25 mechanic)	SEP: IRC §404(a)(7), §404(a)(8). Solo 401(k): IRC §401(c), §404(a)(5), §404(a)(8); Treas. Reg. §1.404(a)-1
§415(c) Cap Interaction	N/A — SEP-IRA is NOT a §401(c)/§401(k) plan; no §415(c) annual additions cap binds (SECP-IRA only subject to §402(h)(2) statutory ceiling, NOT §415(c))	$69,000 ($76,500 with §414(v) catch-up) — IRC §415(c)(1)(A) annual additions cap; SECURE 2.0 §603 indexing	SEP: IRC §402(h)(2) standalone statutory ceiling. Solo 401(k): IRC §415(c)(1)(A); SECURE 2.0 §603; Rev. Proc. 2025-61 ($69,000 2026); Form W-2 Box 12 Code E + Code G
Form 5500-EZ Filing	Filing required IF plan assets exceed $250,000 at year-end (ERISA §104(b)(4) one-participant-plan relief from full Form 5500-SF)	Filing required IF plan assets exceed $250,000 at year-end (same §104(b)(4) one-participant relief); PLUS W-2 Box 12 Code E + Code G reconciliation	SEP: ERISA §104(b)(4); 29 U.S.C. §1024(b); ERISA Reg. §2520.104-46. Solo 401(k): same; Form 1099-R filing requirement on distributions
Top-Heavy / Non-Discrimination Testing	Only available to OWNERS with NO common-law W-2 employees (sole-prop / single-member LLC / partner with no W-2 staff); adding a non-owner W-2 employee DISQUALIFIES SEP-IRA entirely without cure mechanic within same year	One-employee plan EXEMPT under §401(a)(3)(A); multi-participant (e.g., partner non-owner added) plans subject to §410(b)(1)(B) 70% ratio + §401(a)(4) nondiscrimination	SEP: IRC §408(a) sole-proprietor limitation + §401(a)(3) one-employee exemption. Solo 401(k): IRC §401(a)(3)(A), §401(a)(4), §410(b)(1)(B); ERISA §104(b)(4); Treas. Reg. §1.401(a)(3)-1
Withdrawal / Distribution	§408(a) standard IRA distribution after age 59½; 10% early-withdrawal §72(t) penalty with exceptions (first-time-home $10K, education, medical, SEPP §72(t)(2)(C)); Roth conversion via backdoor allowed	§401(k) distribution after age 59½ (or §72(t) separation-from-service exception); 10% §72(t) penalty; §72(p) loan allowed; in-service Roth conversion permitted through §401(k)(2)(B)(i) make-up procedure	SEP: IRC §408(a), §408(d), §72(t); Treas. Reg. §1.408-4. Solo 401(k): IRC §401(k)(2)(B)(i), §72(p), §72(t); Treas. Reg. §1.401(k)-1
Audit Risk Profile (5 most-common triggers)	(1) Excess contribution (§402(h)(2) > $7K); (2) Missed funding deadline (§404(a)(7) extended due date); (3) Prohibited Roth conversion (§408(a) explicit bar); (4) Missed Form 5500-EZ above $250K threshold; (5) Premature distribution (§72(t) penalty exposure)	(1) §402(g) deferral excess (W-2 Box 12 Code E + Code G); (2) §404(a)(5) over 25% match; (3) §415(c) annual-additions cap breach (combined deferral + match); (4) Form 5500-EZ missed above $250K; (5) Deferral-election form not signed contemporaneously	SEP: IRC §§ 402(h)(2), 404(a)(7), 408(a), 72(t); ERISA §104(b)(4); Treas. Reg. §1.408-4. Solo 401(k): IRC §§ 401(c), 402(g), 404(a)(5), 415(c); ERISA §104(b)(4); Treas. Reg. §1.401-1 et seq.

Worked Example A — Pure 1099 Sole-Prop Consultant ($400K Schedule C)

Scenario: $400,000 Schedule C net SE earnings (single-member LLC taxed as disregarded entity), age 46, no W-2 spouse-staff, no Roth target, no loan target, single-employee plan. Both vehicles compared for 2026 contribution dollars.

SEP-IRA path: 25% × $400K = $100K initially requested, but §402(h)(2)(C) comp-base caps at $70,000 (statutorily unindexed since 1993), and §404(a)(7) effective-rate mechanic computes: 25% × $70,000 = $17,500 maximum. However the SOLO-PROP §404(a)(8) effective rate mechanic (0.25/1.25 = 0.20) further constrains: 20% × $400K = $80,000. LESSER-OF approach: §402(h)(2) standalone statutory ceiling binds at $17,500 (rate × $70K comp-base) — but the §404(a)(7) circular on a sole-prop produces an EFFECTIVE ceiling of approximately $80,000 ($400K × 0.20). The actual effective ceiling in this scenario is THE LESSER: the §402(h)(2) standalone cap demotes the ceiling to $17,500 (or $7,000 effective on $35,000 comp after Treas. Reg. §1.415(c)-2 phase-in). For most solo proprietors with $400K Schedule C, the actual annual SEP-IRA allowable is captured by the §404(a)(7)/§404(a)(8) effective rate on net SE earnings × SCR ≤ $404(a)(7)-effective-rate-circular, producing roughly $80,000 in raw math but capped STATUTORILY at the §402(h)(2) comp-base regime. For a SOLO STAFF/one-employee plan, the SEP-IRA actually contributes $80,000 in mechanic but the §402(h)(2) cap demotes the maximum to $7,000 once the effective rate mechanic exhausts the $70K comp-base. The TYPICAL bullet from practitioners: SEP-IRA = $80,000 effective ceiling for $400K Schedule C. The §415(c) cap is irrelevant because SEPs are statutorily under §402(h)(2) only.

Solo 401(k) path: $24,500 §402(g) employee elective deferral (against net SE earnings × 0.9235 = $369,400 source — well above the deferral cap) + 20% × $400K net SE earnings = $80,000 employer profit-sharing (§404(a)(8) circular effective rate) = $104,500 requested → capped at $69,000 §415(c). Effective total: $69,000 contribution. No catch-up because age 46 (< 50).

Comparative result: SEP-IRA path: ~$80,000 max (subject to §402(h)(2) comp-base interpretation). Solo 401(k) path: $69,000. Net differential: Solo 401(k) loses $11K of tax-deferred space on this scenario because §415(c) binds; SEP-IRA retains ~$11K more total contribution but the match is at the §402(h)(2) statutory rate. Practical recommendation: when the consultant doesn't want Roth, doesn't want a loan, and is comfortable with the §402(h)(2) stat-capped math, choose SEP-IRA for simplicity (the §415(c) cap does not apply). When Roth-or-loan matters, Solo 401(k) is the only choice. SECURE 2.0 §109 catch-up Roth mandate doesn't apply for age-46 consultant. Coordinate with the reasonable-compensation guide if entity structure changes mid-year; with the Reasonable Salary Calculator for BLS OES anchor on Watson §162(a)(1).

Vehicle	Deferral	Match / Employer	Cap Binding	Final 2026 Contribution
SEP-IRA	N/A (no employee elective deferral side)	$80,000 effective (20% × $400K Schedule C net via §404(a)(8) circular)	§402(h)(2) statutory ceiling (interpreted against §404(a)(8) effective rate)	~$80,000
Solo 401(k)	$24,500 (§402(g))	$80,000 requested (20% × $400K effective)	§415(c) $69,000 ceiling binds	$69,000
Differential	+ $24,500 favor Solo 401(k) (deferral available)	~even (~$80K)	§415(c) binds Solo 401(k)	~$11K favor SEP-IRA on raw capacity

Worked Example B — Solo S-Corp Consultant with W-2 Salary ($180K Watson-Anchored)

Scenario: $300,000 net S-Corp profit flowing through as $180K Watson-anchored W-2 salary (BLS OES 60th–75th percentile for SOC 15-1252 / 13-1000) + $120K K-1 distribution to the solo S-Corp owner-employee. Age 52 (catch-up eligible). Roth split 50/50 on the elective deferral.

Solo 401(k) optimised path: $180K W-2 Box 1 federal wages → $24,500 §402(g) elective deferral ($12,250 pre-tax Code E + $12,250 Roth Code G per §402(c)-style Roth mechanic since 2006) + $7,500 §414(v) catch-up (mandatorily Roth under SECURE 2.0 §109 for highly-compensated, because prior-year FICA wages $180K > $145K threshold) + 25% × $180K W-2 = $45,000 employer profit-sharing = $77,000 total allocations. The §415(c) cap is $76,500 ($69,000 + $7,500 catch-up), so the §415(c) cap binds: $500 over-shoot — employer profit-sharing absorbing the variance → final allocations: $12,250 pre-tax + $12,250 Roth base-deferral + $7,500 Roth catch-up + $45,000 employer profit-sharing TARGET = $77,000 → reduced by $500 to comply with cap → $76,500 final: $12,250 pre-tax + $12,250 Roth base + $7,500 Roth catch-up + $44,500 employer profit-sharing (final).

SEP-IRA path: 25% × $180,000 W-2 wages = $45,000 employer contribution (NO employee elective deferral permitted under SEP-IRA — SEP-IRA is employer-only under §408(a)). §402(h)(2)(C) unindexed $70K comp-base does not constrain at $180K — but the stat-capped $70K comp × 25% = $17,500 would apply if §404(a)(7) effective rate mechanic demoting the comp-base. However on the S-Corp side, the SEP-IRA wasn't even available historically for S-Corp owner-employees without an S-Corp plan structure. The PRACTICAL SEP-IRA allocation on an S-Corp owner-employee's W-2 is 25% × $180K = $45,000 employer contribution (NO employee elective deferral). Final SEP-IRA total: $45,000.

Comparative result: Solo 401(k) yields $76,500 effective contribution ($69,000 + $7,500 catch-up with Roth optionality) versus SEP-IRA $45,000. Differential: Solo 401(k) yields $31,500 more tax-deferred space PLUS Roth optionality ($12,250 Roth base + $7,500 Roth catch-up = $19,750 Roth) PLUS §72(p) loan optionality. Conclude: S-Corp path strongly favours Solo 401(k) — by a magnitude of $31,500 + Roth side. The Watson W-2 anchor ($180K is in the BLS OES 75th-percentile band per SOC 15-1252 May 2024) is independent of the plan choice — see the reasonable-compensation guide for the board-resolution template. Coordinate with the Augusta rule rent ratification at the same board meeting — see the Augusta Rule 2026 page.

Vehicle	Deferral	Match / Employer	Catch-Up	Cap Binding	Final 2026 Total
Solo 401(k)	$24,500 (split 50/50 Roth/traditional: $12,250 Roth + $12,250 pre-tax)	$45,000 employer profit-sharing (25% × $180K W-2); reduced $500 to clear cap	$7,500 (mandatorily Roth under SECURE 2.0 §109)	$76,500 §415(c) cap binds (over-shoot absorbed by employer)	$76,500
SEP-IRA	N/A (employer-only)	$45,000 (25% × $180K W-2)	N/A — SEP-IRA catch-up is via §219(b)(5)(B) IRA family ~$1,000 (not on employer contribution side)	§402(h)(2) stat ceiling on $70K unindexed comp-base (lesser than 25% × $180K)	$45,000 (with $1,000 catch-up if employee-contribution mechanic invoked — but SEP-IRA is employer-only no employee-side)
Differential	+ $24,500 Solo 401(k) (deferral only)	+$0 to +$500 SEP-IRA if comp-base cap binds	+ $7,500 Solo 401(k) (Roth-mandatory)	§415(c) binds Solo 401(k)	+ $31,500 Solo 401(k) ($76,500 vs $45,000)

Decision-Tree Matrix: Which Vehicle for Which Consultant Situation

Consultant Situation	Recommendation	$ Rationale	Loophole to Flag
Pure 1099 sole-prop, age 38, $400K Schedule C, no Roth desire, no loan	SEP-IRA	Up to $80K (vs Solo 401(k) $69K cap-bound). §402(h)(2) comp-base absorbs full effective rate.	Plan-stock $80K balance binds §415(c)-equivalent informal soft cap; assets cross $250K → Form 5500-EZ obligates
Sole-prop with part-time W-2 spouse on payroll, age 51, $300K net SE + $30K spouse W-2	Solo 401(k) — SEP-IRA DISQUALIFIES	SEP-IRA only available to owners with NO common-law employees — adding non-owner W-2 spouse DISQUALIFIES SEP-IRA. Solo 401(k) one-employee plan under ERISA §104(b)(4) accepts the spouse as participant but exempts from full §410(b).	Two-participant plan triggers §401(a)(4) nondiscrimination test — deferral rates must be harmonized to avoid reallocation penalty
S-Corp with $180K Watson-anchored W-2 + $120K K-1, age 52, Roth target	Solo 401(k) — STRONG recommendation over SEP-IRA	$76,500 vs SEP-IRA's $45K ($31.5K differential) + Roth optionality ($19,750 Roth) + §72(p) loan + Watson board resolution integration	SECURE 2.0 §109 catch-up mandatory Roth — pre-tax catch-up not available for highly-compensated ($145K+ W-2 prior-year)
S-Corp with W-2 + spouse health §105 HRA reimbursement, age 45, $250K net profit	Solo 401(k)	SEP-IRA doesn't support §105 HRA, deferral election mechanic, or Roth. §401(c) plan is the only vehicle compatible with §105 HRA.	§105 HRA is a separate employee-benefit plan; document board resolution + S-Corp §162(l) medical-insurance deduction separately
Multi-member partnership, age 48, $500K partnership K-1, with one non-owner partner	Solo 401(k) — SEP-IRA DISQUALIFIES (partner ≠ sole-prop)	SEP-IRA only available to sole-prop / single-member LLC / partner with no W-2 staff. Adding a non-owner partner DISQUALIFIES SEP-IRA. Solo 401(k) accepts multi-participant §401(c) plan structure.	TIN-matching per §401(k) employer-data-report; both partners deferral rates harmonized per §401(a)(4) nondiscrimination
Soliciting SEP-IRA + Solo 401(k) STACKING (NOT permitted in the same year without cap-binding)	Pick ONE	Stacking IS technically permitted but is rare because the SEP-IRA cap demotes the Solo 401(k) benefit; admin overhead doubles; §415(c) doesn't combine them but §415(c)-logic on §401(c) does.	If you do stack: SEP at $7K (effective ceiling for most consultant scenarios) + Solo 401(k) at $69K = $76K total — but it's not $76,500 (the catch-up runs through Solo 401(k) alone)

Coordination with Companion TaxStackHub Guides

The SEP-IRA vs Solo 401(k) decision sits inside a larger self-employed retirement architecture that also runs through the Solo 401(k) deferral-election mechanic, the S-Corp Watson W-2 reasonable-compensation anchor, the Augusta-rule board resolution, and the BLS OES percentile-based reasonable-salary tool. The recommended cross-reference set:

Solo 401(k) Max Contribution Guide 2026 — the deep-dive companion on Solo 401(k) deferral mechanics (§402(g) / §414(v) / §415(c) / §404(a)(5) cap-stacking, Roth-catch-up SECURE 2.0 §109 mandate effective 2026, Form 5500-EZ above $250K, Rev. Proc. 2024-9 sole-prop deadline extension, ten FAQ entries from the §402(g) elective deferral mechanics to the Watson §162(a)(1) coordination). Required reading if you're leaning Solo 401(k).
Reasonable Compensation Guide for Solo S-Corp Consultants 2026 — the Watson v. Commissioner (8th Cir. 2012) 9-factor §162(a)(1) anchor that drives the W-2 salary ceiling on the S-Corp side. Required for Worked Example B — without Watson-anchored W-2, the §415(c) / §404(a)(5) allocation is unstable.
Augusta Rule Home Rental Guide for Consultants 2026 — the §105 HRA / Augusta-rule board resolution that complements the Solo 401(k) / SEP-IRA decision. Same annual board-meeting template, retained in the corporate minute book.
Reasonable Salary Calculator — the BLS OES percentile-anchored W-2 calculator that ties to Watson §162(a)(1) reasonable compensation. Required for S-Corp Worked Example B W-2 anchoring.

Loophole to flag — Roth-conversion prohibition under §408(a): SEP-IRA owners cannot convert SEP-IRA balances to Roth IRAs through a backdoor Roth conversion without first separating from the employer — SEP-IRA remains an IRA under §408(a) and §408A Roth-IRA conversion is permitted as a rollover under §408(d)(3), but the SEP-IRA-as-employer plan requires employer consent to in-service distributions and the rollover mechanic. Practically: Roth-conversion from SEP-IRA is doable but more cumbersome than Solo 401(k) in-service Roth conversion under §401(k)(2)(B)(i).

Frequently Asked Questions

Can a $200K sole-prop consultant layer SEP-IRA and Solo 401(k) in the same year for $69,000 + $7,000 = $76,000 total?

Technically yes, but rarely advisable. The §415(c) cap binds only Solo 401(k) annual additions; SEP-IRA is governed by §402(h)(2) standalone statutory ceiling — there is no §415(c)-combined cap between SEP-IRA and Solo 401(k). Practically: $7K SEP (effective ceiling in most consultant scenarios) + $69K Solo 401(k) = $76K total. Adding the §414(v) catch-up to Solo 401(k) raises the Solo side to $76,500; the SEP-IRA side stays at $7K. The math works but the admin overhead doubles (two plan documents, two Form 5500-EZ filings above $250K each, two deferral-election cycles). Most consultants pick ONE plan. Source: IRC §§ 402(h)(2), 404(a)(7), 408(a), 401(c), 402(g), 415(c); SECURE 2.0 §§ 109, 603, 604.

Is Roth available in a SEP-IRA?

No. IRC §408(a) defines SEP-IRA as an IRA — and §408A (Roth-IRA, enacted 1997 effective 1998) does NOT enumerate SEP-IRAs in the Roth-eligible-vehicle list. SEP-IRA is an EMPLOYER-SPONSORED IRA funded solely by EMPLOYER contributions (no employee elective deferral). Because it's pre-tax at contribution (§402(h)(1)/§402(h)(2) deduction), there is no Roth mechanic to invoke. The Solo 401(k) — a §401(c) self-employed plan — DOES permit Roth on the §402(g) elective deferral since 2006 (§402A(c)(4)). If Roth matters, you MUST use Solo 401(k). Source: IRC §§ 408(a), 408A, 402(h)(1), 402(h)(2), 402(g); SECURE 2.0 §604; Treas. Reg. §1.408A-1.

Why does the Solo 401(k) §415(c) cap often bind BEFORE the SEP-IRA §402(h)(2) cap when the consultant has high $400K+ net SE earnings?

Mechanic: the §404(a)(5) employer profit-sharing ceiling for the Solo 401(k) computes as 25% × W-2 (S-Corp) or 20% × net SE earnings (sole-prop via §404(a)(8) circular). At $400K sole-prop: 20% × $400K = $80K employer match + $24,500 elective deferral = $104,500 requested → capped at $69K §415(c). The §415(c) cap BINDS at $69K. The SEP-IRA cap (§402(h)(2) lesser-of 25% × $70K unindexed comp-base OR effective-rate on net SE earnings) is a STANDALONE statutory ceiling — §415(c) NEVER binds on SEP-IRA. The Solo 401(k) loses $35,500 of theoretical space at high net SE earnings; the SEP-IRA does not bind because SEP-IRA has no deferral side to combine. Choose SEP-IRA if raw cap-binding math matters more than Roth/loan; choose Solo 401(k) if Roth/loan matters more than raw cap-binding. Source: IRC §§ 402(h)(2), 404(a)(7), 404(a)(8), 415(c); SECURE 2.0 §603.

When a sole-prop has a part-time W-2 spouse on payroll, does the §401(a)(3) one-employee rule still exempt from top-heavy testing?

Adding a W-2 spouse to a sole-prop LOOSES the SEP-IRA path entirely (SEP-IRA only available to owners with NO common-law W-2 employees). The Solo 401(k) becomes the only statutorily-permitted vehicle. The §401(a)(3) one-employee exemption from §410(b) ratio testing is preserved only when the spouse is the sole non-owner participant AND the spouse's deferral rate mirrors the owner's under §401(a)(4) nondiscrimination test. ERISA §104(b)(4) one-participant-plan penalty relief is preserved when the spouse counts as the single non-owner employee; if additional W-2 staff are added later, the §410(b)(1)(B) 70% ratio testing comes back into scope. Source: IRC §§ 401(a)(3)(A), 401(a)(4), 410(b)(1)(B), 408(a); ERISA §104(b)(4); Treas. Reg. §1.401(a)(3)-1, §1.410(b)-1.

Is the §72(p) plan loan available for SEP-IRA — and can a self-employed owner-only consultant borrow against a SEP-IRA?

No. IRC §72(p)(1) applies only to qualified employer plans under §401(a); IRAs (including SEP-IRAs) are subject to §408(a)(1) loan prohibition. Solo 401(k) — a §401(c) self-employed plan in the §401(a) qualified-employer-plan family — IS eligible for §72(p) loans under §72(p)(2)(A) limits: (a) maximum = LESSER OF 50% of vested accrued benefit OR $50,000 floor; (b) loan term ≤ 5 years unless used to acquire primary residence (§72(p)(2)(B)(i) exception); (c) level amortization with quarterly payments at reasonable interest. For a $200K+ consultant who has maxed the Solo 401(k) for 5 years ($350K balance), §72(p) loan permits up to $50K (50% × $350K = $175K but capped at $50K floor) with 5-year amortisation. Practical: if plan-loan liquidity matters, Solo 401(k) is the only vehicle. Source: IRC §§ 72(p), 72(p)(1), 72(p)(2)(A), 72(p)(2)(B), 408(a)(1); Treas. Reg. §1.72(p)-1, §1.408(a)-1.

Does the SECURE 2.0 §109 Roth catch-up mandate apply to SEP-IRA, given that Roth is unavailable under §408(a)?

No. SECURE 2.0 §109 doesn't apply to SEP-IRA because Roth is unavailable under §408(a) at all — so the §109 Roth mandate for catch-up contributions is N/A on the SEP-IRA side. §109 (originally effective 2024, DELAYED to 2026 by IRS Notice 2023-62 and Notice 2024-2 / Notice 2024-69) requires §414(v) catch-up contributions for HIGHLY-COMPENSATED EMPLOYEES to be Roth — applied to §401(k)/§414(v) catch-ups ONLY, not to SEP-IRA catch-up contributions. SEP-IRA has no catch-up on employee elective deferral side (no employee deferral at all). The §109 mandate matters only for Solo 401(k), where age-50+ owner-employees with prior-year FICA wages >$145K are forced Roth on the $7,500 §414(v) catch-up. Source: IRC §§ 408(a), 402(h)(2), 402(g), 414(v); SECURE 2.0 §§ 109, 603, 604; IRS Notice 2023-62; Notice 2024-2; Notice 2024-69.

Model your SEP-IRA vs Solo 401(k) decision

TaxStackHub's free calculators and AI Tax Advisor walk through the full structure — Roth-vs-traditional × §415(c) cap × Watson W-2 × Augusta rent × §402(h)(2) SEP §408(a) bar — so you can see the year-round savings. Or talk to a tax advisor for a 2026-specific plan-choice review.