Self-Employed Retirement Plans
Solo 401(k), SEP-IRA or SIMPLE IRA: what each lets a sole proprietor contribute at your profit and age under the 2026 limits, and what the contribution costs after income tax and the QBI deduction it gives back.
Your business
The rest of the return
QBI deduction at high incomes
These matter only once taxable income passes $201,750, or $403,500 on a joint return.
Gets the most in
Solo 401(k)
$54,239 at this profit and age
Income tax it saves
$9,546
17.6% of each dollar contributed
What the contribution costs you
$44,693
$54,239 in, less the tax saved
QBI deduction it gives up
$10,848
$29,739 with no plan
The three plans at your numbers
| Plan | Your deferral | Employer share | Catch-up | Most it allows | You put in | Income tax saved | QBI deduction given up | Costs you | Saved per dollar in |
|---|---|---|---|---|---|---|---|---|---|
| Solo 401(k) | $24,500 | $29,739 | $0 | $54,239 | $54,239 | $9,546 | $10,848 | $44,693 | 17.6% |
| SEP-IRA | $0 | $29,739 | $0 | $29,739 | $29,739 | $5,234 | $5,948 | $24,505 | 17.6% |
| SIMPLE IRA | $18,100 | $4,433 | $0 | $22,533 | $22,533 | $3,966 | $4,507 | $18,567 | 17.6% |
2026 limits. A contribution lowers income tax, not self-employment tax.
How much each plan allows as profit rises
The Solo 401(k)'s deferral puts it far ahead at modest profits. A SEP catches up only near $380,000 of profit. A SIMPLE wins only at very low profits, where its match is figured before the contribution.
Where the limits start
How it works›
The 20% that looks like 25%. An employer can contribute 25% of compensation. A sole proprietor's compensation is net profit, less half of self-employment tax, less the contribution itself, so the 25% works out to 20% of profit less half of SE tax. Taking 25% of profit over-contributes. That share is also limited to 25% of $360,000 and, with any deferral, to $72,000.
Solo 401(k). A $24,500 salary deferral on top of the 20% employer share, $72,000 together. One deferral limit covers every 401(k) and 403(b) you have, so deferrals at another job come off it. At 50 the catch-up adds $8,000, and $11,250 from 60 to 63, outside the $72,000.
SEP-IRA and SIMPLE IRA. A SEP takes only the employer share and has no catch-up. A SIMPLE takes a deferral of $17,000, or $18,100 with 25 or fewer employees, a catch-up of $4,000 ($3,850 in those small plans) or $5,250 from 60 to 63, and a match of up to 3% of net earnings counted before any contribution.
The QBI give-back. The 20% qualified business income deduction is figured on business income after the retirement contribution, so a dollar contributed saves tax on about 80 cents below the threshold. Above $201,750 of taxable income, $403,500 joint, the deduction is squeezed over the next $75,000 or $150,000 by a cap tied to W-2 wages and property, and a service business loses it altogether. From 2026 it is never less than $400 on $1,000 or more of business income.
What it leaves out. State income tax, Roth contributions to any of these plans, the additional 0.9% Medicare tax, employees other than a spouse, who are owed contributions under every one of these plans, and a defined benefit plan, which can shelter far more for an older owner. Limits are from IRS Notice 2025-67 and Rev. Proc. 2025-32.