Why they usually don't tie
A SEP IRA only has one contribution lever — the employer-side profit-sharing piece, worth 20% of net self-employment earnings for a sole proprietor. A Solo 401(k) has that same employer piece, plus an employee elective deferral on top. At lower and middle incomes, that deferral is often worth more than the gap in the employer formula — which is why the Solo 401(k) usually wins until profit gets very high.
When they converge
As net profit climbs into the high hundreds of thousands, both plans eventually hit the same overall dollar cap, and the employee deferral becomes a smaller share of the total. At that point the two plans land close to the same place — but almost nobody in the sub-$300,000 profit range is in that territory.
Beyond the dollar amount
SEP IRAs are simpler to set up and administer, with no separate deferral election to track. Solo 401(k)s allow Roth contributions on the employee side (most providers), permit loans against the balance, and open the door to a spousal plan if your spouse also earns income from the business. Contribution room isn't the only factor — but it's usually the deciding one.
Common questions
Can I switch from a SEP IRA to a Solo 401(k) later?
Generally yes, though existing SEP IRA balances typically stay in the SEP IRA rather than rolling automatically — most providers can roll it into the new Solo 401(k) if you want everything in one place.
Does a SEP IRA allow catch-up contributions?
No — SEP IRAs have no age-50-plus catch-up provision. That gap is part of why the Solo 401(k) advantage tends to grow for older self-employed savers.
Which is easier to set up?
A SEP IRA can typically be opened with a one-page form and no annual filing requirement. A Solo 401(k) takes a bit more paperwork upfront and requires a Form 5500-EZ once plan assets exceed $250,000.