Retirement Account Types Compared: 401k vs IRA vs SEP vs Solo 401k

Choosing a retirement account is really three questions wearing one trench coat: how much can I put away, who pays the tax and when, and which plan fits how I earn? For 2026 the IRS raised nearly every limit — the 401(k) cap hit $24,500, the total solo-plan ceiling reached $72,000, and IRAs climbed to $7,500 — while a brand-new rule quietly forces higher earners' catch-up contributions into Roth. Here's every major account compared with the actual 2026 numbers, and the decision logic we walk owners through.

What are the 2026 numbers?

All figures below are the official 2026 cost-of-living amounts (IRS Notice 2025-67):

Two supporting numbers worth knowing: compensation above $360,000 doesn't count toward percentage-based employer contributions, and the $72,000 defined-contribution ceiling grows to $80,000 with a 50+ catch-up (or $83,250 at ages 60–63) in plans that allow deferrals.

Traditional or Roth — how do you actually choose?

Same account, opposite tax bets. Traditional deducts now and taxes withdrawals later; Roth skips the deduction and never taxes qualified withdrawals. The clean heuristic: deduct at high brackets, Roth at low ones. A strong-earning business owner in the 32–37% range usually wants the deduction today; a young freelancer in the 12–22% range is often buying tax-free decades at a discount with Roth dollars.

In practice we usually land on a blend — pre-tax plan contributions for the bracket relief, plus Roth IRA (or Roth 401(k) dollars) for tax diversification, since nobody knows their retirement bracket or future law with certainty. Two 2026-specific wrinkles sharpen the choice: today's rates are locked in as "permanent," but your bracket still moves with income — and for high-W-2 households, Roth is no longer entirely optional, which is the next section.

What's the new mandatory Roth catch-up rule?

Starting with 2026 contributions, if your prior-year Social Security (FICA) wages from your employer exceeded $150,000 (2025 wages, per your W-2 Box 3), any 401(k)-type catch-up contributions you make at 50+ must be Roth — after-tax money, no deduction. The threshold indexes going forward; final IRS regulations landed in September 2025, and plans are implementing throughout 2026.

Notes from the fine print: it's based on wages, so self-employed people with no W-2 FICA wages (sole proprietors, partners) generally aren't captured. If your plan doesn't offer a Roth option, affected employees may lose catch-up ability there — worth a question to HR or your plan provider this year, not next April.

Which plan fits self-employment income?

The SEP vs. solo 401(k) matchup has a usual winner, and it's the one with more paperwork.

Both share the $72,000 ceiling, but they climb toward it differently. A SEP is employer-money-only: roughly 25% of compensation (effectively ~20% of net self-employment profit after the SE-tax adjustment). A solo 401(k) starts with the $24,500 employee deferral — available from the first dollar of earnings — then adds the same employer percentage.

Hedged example: net self-employment profit around $120,000. A SEP allows roughly $22,000. A solo 401(k) allows that same ~$22,000 employer piece plus $24,500 of deferral — call it ~$46,500, more than double, at identical income. (Exact figures run through the SE-tax calculation; treat these as the shape.) Add the 50+ catch-up — Roth-mandate-free for most of the self-employed — and the gap widens further.

The SEP still wins on simplicity: open and fund it as late as your extended filing deadline, no annual filings, trivially easy. The solo 401(k) must exist by December 31 to accept deferrals for the year and needs a Form 5500-EZ once assets pass $250,000 — the price of the bigger numbers, plus features SEPs lack (Roth deferrals, loans).

What if you have employees?

The calculus flips, because the plans above stop being solo instruments:

1. A SEP becomes expensive fast — whatever percentage you contribute for yourself, you must generally contribute for every eligible employee. Ten percent for you means ten percent for everyone.
2. A SIMPLE IRA is the value option for small teams: employees defer up to $17,000 (2026), you match up to 3% of pay (or give 2% to everyone), with near-zero administration.
3. A full 401(k) with safe-harbor design costs more to run but unlocks the $24,500/$72,000 architecture, Roth options, and profit-sharing flexibility — usually the endgame once payroll is real. Startup tax credits can offset much of the setup cost for new plans.
4. High-earning owners 45+ who want six-figure deductions can layer a cash balance plan on top — contributions can reach well into six figures, though hedged: these are actuarial commitments, not casual accounts.

Sequencing matters as much as selection: match-first, then HSA (triple tax advantage — $4,400/$8,750 limits in 2026), then max the main plan, then backdoor-Roth territory. If you're deciding this alongside an S-corp election, remember plan contributions key off W-2 salary for S-corp owners — the salary you set and the retirement ceiling you get are one linked decision, which is exactly what our year-round planning is for. Owners bring us a "which account" question; it's usually a "whole compensation structure" answer. Problems come here to get solved.

What deadlines actually bind for 2026?

Mark three: December 31, 2026 — solo 401(k) established (and employee deferrals elected); April 15, 2027 — 2026 IRA and HSA contributions, no extensions; your filing deadline plus extensions — SEP contributions and most employer contributions. The annual-limits landscape shifts every year — the current one is summarized in our 2026 tax changes hub, and ongoing contribution planning is built into the advisory tiers on our pricing page.

FAQ

Can I contribute to more than one account type in the same year?

Yes — a 401(k) at work plus an IRA is routine (the IRA deduction may phase out), and a side business can fund a solo 401(k) alongside a day-job plan, though the $24,500 deferral limit is shared across all 401(k)s while the $72,000 ceiling is per unrelated employer.

I earn too much for a Roth IRA. Is it really closed to me?

The front door is (phase-outs above), but the backdoor route — nondeductible traditional contribution, then conversion — remains available under current law. Watch the pro-rata rule if you hold pre-tax IRA balances.

Is the extra 60–63 catch-up automatic?

Only if your plan adopted it — the $11,250 "super catch-up" is optional at the plan level. One question to your provider settles it.

SEP or solo 401(k) if I'm starting mid-year?

You can still do either for 2026 — but the solo 401(k) needs to exist by December 31, so decide in the fall, not at filing time. If the year's already gone, a SEP can be opened retroactively up to your extended deadline.

Do these accounts reduce self-employment tax?

No — they reduce income tax only. The SE tax savings conversation is the S-corp conversation, and the two strategies work best planned together.

Reviewed by the WAYG tax team · Updated July 2026