Self-employed accounts — SEP-IRA, Solo 401(k), and the no-employer reality

Here is the quiet fear that rides along with every freelance invoice and every gig payout. Your friends with regular jobs got a retirement account handed to them — a 401(k) that showed up on day one, an employer match they barely had to think about, a slice of every paycheck swept into investments automatically before they could spend it, the whole thing running in the background whether they paid attention or not. You got a 1099 and a bank deposit. Nobody enrolled you in anything. Nobody is matching anything. Nobody is sweeping money out of your pay for your future, because there is no payroll department and no "your pay" — there's just what the client sent, all of it, taxes and retirement and everything else now entirely your problem to sort out. And underneath the day-to-day of that sits a colder worry: that because no one is doing this for you, you must be falling behind, that the system simply wasn't built for someone like you, and that you've somehow already missed the train your salaried friends are riding.

Let's take that fear apart right now, because almost none of it survives contact with the facts. The truth is closer to the opposite of what it feels like. The self-employed person doesn't have a smaller, sadder version of a retirement account — they have access to accounts with dramatically BIGGER limits than the typical employee gets, more flexibility, and a more forgiving deadline. A salaried worker can put about $24,500 of their own money into a 401(k) this year. A self-employed person, through the accounts in this lesson, can shelter up to $72,000 — nearly three times as much — because they get to wear two hats at once: they are both the employee AND the employer, and they get to contribute as both. The thing that's genuinely true is that no one sets it up for you. That's the whole catch, and it's a smaller catch than it feels like: setting one up is free, takes about twenty minutes, and once you've done it the account does everything a 401(k) does. The disadvantage isn't the account. It's that the starting gun is yours to fire.

So this lesson hands you exactly what you need to fire it. There are two main accounts a self-employed person chooses between — the SEP-IRA and the Solo 401(k) — and the lesson's spine is learning what each one is, doing the actual math that decides which shelters more of your money (it's not the math you'd guess), and meeting the one timing trap that trips people every spring. We'll work it all through on real people: DeShawn Carter, a 33-year-old freelance web developer in Atlanta making about $85,000 a year, who carries the central worked example; Jordan Lee, a 27-year-old gig worker in Nashville whose income is lumpy and who just wants to know whether someone like them can even do this; and a high-earning consultant whose numbers show where the two accounts stop differing and quietly become the same.

A few things this lesson deliberately doesn't try to be, so you know where the edges are. It is not the lesson on quarterly estimated taxes — the other half of the no-employer reality, where you also have to send the IRS your taxes yourself four times a year — which gets its own full treatment in Lesson 45. It is not the lesson on the 1099 forms themselves (Lesson 43), or the backdoor Roth (Lesson 24), or the regular taxable brokerage account (Lesson 25), or the priority order that decides which account gets your first dollar at all (Lesson 11). This lesson owns one thing and owns it completely: the retirement accounts a person without an employer uses, and how to choose and fund one. Let's start by looking the no-employer reality straight in the face — because once you see what's actually missing, you'll see it's far less than the fear claims.

Before we open a single account, it's worth sitting with what's actually different about being self-employed, because the fear in the intro is vague and a vague fear is hard to disarm. Named precisely, it shrinks. So this section does two things: first it names exactly what the missing employer took with it — the real losses, stated plainly, no sugar-coating — and then it turns the same situation over and shows the side almost nobody mentions, which is that the self-employed person is handed a set of advantages a regular employee can only envy. Both halves are true at once. The trick is to stop letting the first half hide the second.

§1.1 — What the missing employer took with it

That form above is where DeShawn Carter's working life shows up on paper, and it's worth meeting him before we read it. DeShawn is 33, a freelance web developer in Atlanta. He builds and maintains websites for a handful of small businesses and agencies, billing each of them directly, and in an average year that work adds up to about $85,000. He has no boss, no HR portal, no benefits package, and — this is the part that matters here — no retirement account of any kind, not yet. The document on the screen is a Form 1099-NEC, the "NEC" standing for nonemployee compensation, and every client who paid him $600 or more in a year sends him one. He gets several; together they total roughly $85,000. This particular one is from one client, Peachtree Digital, reporting $52,400 they paid him over the year. We cover the whole 1099 family in detail in Lesson 43 — here we only need one box on it.

Look at Box 4: federal income tax withheld, $0.00. That single zero is the entire no-employer reality in one number. When a salaried friend of DeShawn's gets paid, their employer has already quietly removed federal income tax, Social Security and Medicare tax (FICA), often a 401(k) contribution, and sometimes health-insurance premiums — all before the paycheck ever lands. The money that hits their account is what's left after a whole apparatus has taken its cuts and routed them where they belong. DeShawn's 1099 shows the opposite: the client handed him the entire amount and withheld nothing, because there is no apparatus. No tax was set aside. No FICA was split with an employer. And — the piece this lesson is about — not one dollar was put toward retirement, because there is no employer to put it there. The saving that happens automatically in the background of a salaried life simply does not happen in DeShawn's. If it's going to happen, he is the one who has to make it happen.

Let's name the four specific things the missing employer took, because each one is a real loss and pretending otherwise would be dishonest. First, the automatic enrollment — no one signed DeShawn up for anything, so the default isn't "saving a little," it's saving nothing. Second, the match — a regular employer often adds free money on top of what you contribute, typically a few percent of salary, and DeShawn gets none of that; every dollar in his account will be a dollar he put there himself. Third, the payroll deduction — the friction-free mechanism that moves money to savings before you ever see it, which is gone, replaced by the much harder job of moving it yourself after the money is already sitting in your checking account tempting you. And fourth, the structure — the simple fact that someone else had set the whole thing up, chosen a plan, picked a default fund, and handled the paperwork. DeShawn has to be his own benefits department. Those are genuine disadvantages, and the rest of this lesson is largely about rebuilding each one by hand.

There's a fifth thing worth naming because it's the source of so much of the dread, even though it isn't strictly about retirement: nobody is withholding his taxes, either. That $0.00 in Box 4 means DeShawn owes the IRS money nobody set aside — both income tax and the full self-employment tax, the roughly 15.3% that covers both halves of Social Security and Medicare (an employee splits that with their employer; the self-employed pay all of it themselves). On his income that self-employment tax runs about $12,000 a year. The mechanics of paying it — the four-times-a-year estimated payments, the forms — are a whole topic of their own, and they belong to Lesson 45, so we won't work through them here. But it can't be ignored entirely in THIS lesson, for one reason that surprises people: that self-employment tax is woven directly into the retirement-contribution math we're about to do. The amount DeShawn can put into a SEP-IRA or a Solo 401(k) is calculated AFTER accounting for it. So we'll meet the self-employment tax again in §2, not as a tax lesson, but as the first ingredient in the recipe for how much he's allowed to save.

§1.2 — The two hats, and the limits that come with them

Now turn the situation over, because there is a whole second side the fear never shows you. The same fact that feels like a loss — that DeShawn has no employer — also means DeShawn IS the employer. He's not an employee who got left out of a plan; he's a one-person business, and a business gets to sponsor a retirement plan and contribute to it on behalf of its workers. DeShawn happens to be both the business and its only worker, which means when he sets up one of these accounts, he gets to put money in twice: once as the employee, deferring part of his own pay, and once as the employer, making a contribution on the business's behalf. This is the single most important reframe in the lesson, so it gets a name we'll use throughout: the two hats. The self-employed person wears both the employee hat and the employer hat, and contributes wearing each one.

Why does that matter so much? Because of what it does to the limits. A regular employee — wearing only the employee hat — can put about $24,500 of their own salary into a 401(k) in 2026 (this is the figure the IRS sets each year; we'll use the confirmed 2026 numbers throughout). That's their ceiling. The self-employed person wearing both hats gets the employee's $24,500 deferral AND an employer contribution on top, and the combined total can run all the way up to $72,000 in 2026. That $72,000 figure is a real limit set by the tax code — it's called the annual-additions limit, the most that can land in the account from all sources in one year — and it's nearly three times what the salaried employee gets to themselves. Read that again, because it's the exact inverse of the fear: the person who feels left out of the retirement system actually has access to one of its largest shelters. Most self-employed people will never have the income to fill all $72,000 of it. But the headroom is there, and it's enormous, and it belongs to them precisely because they wear both hats.

The advantages don't stop at the size of the limit. Because DeShawn runs the plan, he also controls everything inside it: he picks the provider, so he can choose one of the rock-bottom-cost brokerages and pay almost nothing in fees, instead of being stuck with whatever menu an employer happened to pick. He picks the investments, with the full universe of cheap index funds available rather than a curated list of a dozen. And he gets a deadline a regular employee can only dream of: for some of these accounts, he can decide how much to contribute for a given year as late as the following spring — even the following fall — once he actually knows what he earned, instead of having to guess in advance through payroll. For someone whose income swings from year to year, that hindsight is a genuine gift, and we'll see in §5 exactly how it turns lumpy income from a problem into something workable.

So here is the honest ledger of the no-employer reality, both columns side by side, before we go build the account. The losses are real: no automatic enrollment, no match, no payroll deduction, no one setting it up for you. The gains are just as real: limits up to $72,000 instead of $24,500, total control of provider and fees and investments, and a forgiving deadline. The fear focuses entirely on the first column and never looks at the second. The work of this lesson is to do the one thing that's actually missing — set the account up and fund it yourself — and once that's done, the second column is all yours. Let's start with the simpler of the two accounts that unlock it: the SEP-IRA.

The first account on the menu is the SEP-IRA, and its entire personality is captured by the first word of its name: Simplified. SEP stands for Simplified Employee Pension, and it was designed to be the easiest possible way for a small business — including a business of one — to put retirement money away with almost no paperwork and no ongoing maintenance. For a lot of self-employed people it's the right answer precisely because it asks so little of them. But "simple" hides one genuinely tricky piece of arithmetic — the math that determines how much you can actually contribute — and one real trap that springs the moment you hire anyone. This section takes the SEP in three beats: what it is and how you open one (§2.1), the contribution math worked all the way through on DeShawn (§2.2), and who it really fits, including the deadline that makes it shine and the trap that makes it dangerous (§2.3).

§2.1 — What a SEP-IRA is, and how you open one

A SEP-IRA is, mechanically, an IRA — an Individual Retirement Arrangement, the same kind of personal retirement account we cover in full in Lesson 18 — with one special feature bolted on: a business can contribute to it on behalf of its owner and employees, in amounts far larger than a regular IRA allows. A normal IRA caps you at $7,500 in 2026. A SEP-IRA lets the business put in up to $72,000. That's the whole idea: take the simplicity and tax treatment of an IRA, and raise the ceiling to small-business levels. The money goes in pre-tax (lowering this year's taxable income), grows tax-deferred for decades, and is taxed as ordinary income when you withdraw it in retirement — exactly the traditional-account bargain from the earlier account lessons.

Here is the defining quirk of the SEP, the thing that makes it simple and also shapes everything else about it: a SEP is funded entirely by EMPLOYER contributions. There is no employee-deferral piece at all. Remember the two hats from §1.2 — with a SEP, DeShawn only ever wears the employer hat. He doesn't "defer part of his paycheck" into a SEP the way an employee defers into a 401(k); instead, his business makes a single contribution on his behalf. For a one-person business that distinction can feel like wordplay — it's all his money either way — but hold onto it, because it's the exact reason the SEP and the Solo 401(k) end up with such different contribution limits in §4. One hat versus two hats turns out to be the whole ballgame.

Opening one is genuinely easy, and this is where the "simplified" promise pays off. DeShawn goes to any major low-cost brokerage — Fidelity, Schwab, Vanguard, and others all offer SEP-IRAs free — and opens a SEP-IRA online in about the time it takes to open a checking account. Behind the scenes, establishing the plan involves a one-page IRS document called Form 5305-SEP, the model agreement that formally creates the SEP. The reassuring part: when you use a brokerage's SEP, they handle that form for you, and even if you fill it out yourself, Form 5305-SEP is NOT filed with the IRS — you simply sign it and keep it in your records. There's no annual government filing for a SEP, ever, no matter how large it grows. You open it once, and from then on the only recurring action is deciding each year how much to put in. That near-total absence of paperwork is the SEP's signature virtue, and for a lot of freelancers it's reason enough to choose it.

One more piece of plain mechanics before the math. Because a SEP is built on the IRA chassis, the money inside it follows IRA rules once it's there: you can invest it in the same cheap index funds as any IRA, you generally can't touch it before age 59½ without a 10% early-withdrawal penalty, and — a detail that matters more than it looks — a SEP-IRA balance counts as a pre-tax IRA for a specific high-income strategy called the backdoor Roth. If you ever plan to do a backdoor Roth (the subject of Lesson 24), a SEP balance can get in the way of doing it cleanly, in a way a Solo 401(k) balance does not. We'll flag exactly why in §4; for now just file it away as a quiet point in the Solo 401(k)'s favor for certain high earners. With the account understood, let's do the thing the SEP makes deceptively hard — figure out how much DeShawn can actually put in.

§2.2 — The 20% math: why a sole proprietor's number isn't the one on the brochure

The worksheet above is the one document in this lesson you actually have to be able to read, so we're going to walk every line of it on DeShawn's real numbers. It's modeled on the worksheet in IRS Publication 560, the official rulebook for small-business retirement plans, and it exists to answer one question: given what a self-employed person earned, what's the most they can contribute? The reason it needs a whole worksheet — rather than just "multiply your income by a percentage" — is a genuinely confusing wrinkle that trips up almost everyone the first time, and getting it right is the difference between contributing the correct amount and accidentally over-contributing (which triggers IRS penalties you'd rather avoid).

Start with the headline number everyone quotes: a SEP lets you contribute 25% of compensation. That's true — for an employee with a W-2 salary. If DeShawn were a regular employee earning a $85,000 salary, the business could put 25% of it, or $21,250, into his SEP. But DeShawn isn't an employee with a salary. He's a sole proprietor, and his "compensation" is his business profit, and here the wrinkle appears: a sole proprietor's contribution is based on income that is itself reduced by the contribution. It's circular — the more he contributes, the lower the income the percentage applies to, which lowers the contribution, and so on. When you solve that circular relationship with algebra, the 25% rate collapses to a clean 20%. The rule is exact: the self-employed rate equals the plan rate divided by one-plus-the-plan-rate, so 25% ÷ 1.25 = 20%. This is why a sole proprietor must never use the 25% headline figure on themselves. Their real rate is 20%, and it's applied not to raw profit but to a slightly reduced number we're about to compute.

So let's walk the worksheet line by line, the way DeShawn (or his tax software) actually would. His net profit — what's left after business expenses, the figure from the bottom of his Schedule C tax form — is $85,000. Watch what happens to it:

Let's make sure every line landed, because each one is doing real work. Line 2 multiplies his $85,000 profit by 92.35% to get $78,497.50. That 92.35% factor (which is just 100% minus 7.65%) exists so the self-employment tax mirrors how a regular employee is treated — an employee's wages aren't themselves inflated by the employer's half of FICA, so the self-employed base is trimmed to match. Line 3 applies the 15.3% self-employment-tax rate to that, giving $12,010 — and notice that's the same roughly-$12,000 self-employment-tax figure we met back in §1, now showing up exactly where we promised it would, inside the contribution math. Line 4 takes half of it, $6,005, because the tax code lets a self-employed person deduct one-half of their self-employment tax, and that deduction also reduces the income their retirement contribution is based on. Line 5 subtracts that half from his original $85,000 profit, giving $78,995 of "net earnings" — this is the real base. And line 6 multiplies it by 20%, landing on DeShawn's maximum SEP contribution: $15,799.

Sit with that result for a second, because it's smaller than the brochure implied and that gap is the whole point of the worksheet. The 25% headline would have suggested over $21,000. DeShawn's real SEP maximum is $15,799 — about 18.6% of his $85,000 profit, not 25%. Nothing went wrong; the 20%-of-net-earnings math is simply the correct math for a sole proprietor, and the difference between $15,799 and the $21,000 someone might naively contribute is exactly the kind of over-contribution that draws a penalty. The single most useful thing to carry out of this section is the discipline of running these six lines (or letting tax software run them) rather than trusting the 25% number, because on yourself, as a sole proprietor, the 25% number is wrong.

§2.3 — Who the SEP fits — the forgiving deadline, and the trap that springs when you hire

Now that we know what a SEP is and how much it holds, the real question is who should actually use one — and the SEP has one feature that makes it wonderful for a particular kind of person, and one feature that makes it a quiet disaster for another. Both come from the same root: a SEP is pure employer money, contributed as a single percentage. Let's take the wonderful part first, because it's the SEP's best argument.

The wonderful part is the deadline, and for someone with irregular income it's close to a superpower. You can open AND fund a SEP-IRA as late as your tax-filing deadline — including extensions. For DeShawn's 2026 contribution, that means he has until the spring of 2027, and if he files an extension, all the way until October 2027, to decide how much to put in and to actually move the money. Think about what that allows. He doesn't have to guess in January what kind of year he'll have. He can wait until the year is completely over, until his taxes are essentially done and he knows his exact profit, and THEN look at the worksheet, see that his maximum is $15,799, and contribute whatever he can afford up to that number — with real money he actually has, based on a year he actually finished. A regular IRA's deadline is the unextended April date with no hindsight; the SEP's extended deadline hands a freelancer the one thing variable income craves, which is the ability to decide in retrospect. For a person whose earnings swing from $55,000 in a lean year to $115,000 in a strong one, that flexibility is enormous, and it's the SEP's single best feature.

Now the trap, and it's important enough that it's the main reason a growing business outgrows the SEP. A SEP requires the employer to contribute the SAME PERCENTAGE of compensation for EVERY eligible employee — including the owner. While DeShawn is a business of one, this rule is invisible; he contributes 20% for himself and that's the end of it. But suppose DeShawn's freelance practice grows and he hires two employees. The day they become eligible, the same-percentage rule bites: if he wants to put 20% of his own income into his own SEP, he must also put 20% of each employee's pay into a SEP-IRA for each of them — out of his business's money, fully funded by him, and immediately and completely theirs (SEP contributions vest instantly). He cannot give himself 20% and his staff nothing. There's no way to tilt it toward the owner. For a one-person shop this is a non-issue; for an owner with several employees it can turn a generous personal contribution into a large mandatory payroll for everyone, which is exactly why SEPs are beloved by solos and abandoned by growing businesses.

It's worth being precise about who counts as an "eligible employee," because the trap only springs for certain workers. Under the standard SEP rules, an employee is eligible once they're at least 21 years old, have worked for the business in at least 3 of the last 5 years, and earned at least $800 from it in 2026 (that small dollar threshold is set by the IRS and nudges up over the years). So a brand-new hire or a one-off contractor doesn't trigger it immediately — there's a runway. But once someone clears those bars, the owner owes them the same percentage they give themselves. The honest framing for DeShawn: as long as he stays solo, the SEP's same-percentage rule costs him nothing and its forgiving deadline is a real gift. The moment he seriously considers hiring, the SEP becomes a reason to rethink his whole plan — and we'll see in §6 that there's an account built specifically for the "I have a few employees" situation. For now, DeShawn is solo, the deadline is his friend, and the trap is dormant. The bigger question in front of him isn't the trap — it's whether the SEP's $15,799 is really the most he could be sheltering. It isn't, and the account that beats it is next.

The second account is the Solo 401(k) — also called a one-participant 401(k), an individual 401(k), or a solo-k, all names for the same thing: a full 401(k) plan designed for a business with no employees other than the owner (and optionally their spouse). If the SEP's personality is simplicity, the Solo 401(k)'s personality is power. It can shelter more money than a SEP at the same income, it offers a Roth option a SEP usually can't, and it comes with features — catch-up contributions, the ability to borrow from it — that a SEP lacks. The price of all that power is a little more paperwork and one timing rule you genuinely have to respect. This section takes it in three beats: the two-hats structure that gives it its bigger limit (§3.1), the Roth option and the catch-ups (§3.2), and the deadline trap plus the one annual form that appears once the account gets large (§3.3).

§3.1 — Two hats, two contributions: where the bigger number comes from

The screen above is what DeShawn actually faces when he opens a Solo 401(k) at a brokerage, and the thing to notice first is its structure: it asks him to fill in two roles at once. There's an Employer / Plan Sponsor section — that's his business, the entity adopting the plan — and a Participant / Employee section — that's him, the worker. He signs as both. This is the two hats from §1.2 made literal: a Solo 401(k) is a real employer-sponsored 401(k) plan where DeShawn is simultaneously the employer who sponsors it and the only employee who participates in it. And because he genuinely contributes wearing each hat, his money goes in through two separate doors, which is the entire reason a Solo 401(k) can hold more than a SEP.

Door number one is the employee contribution, called the elective deferral — the same deferral a regular employee makes into a workplace 401(k). DeShawn, as the employee, can defer up to $24,500 of his pay in 2026 (the standard employee limit, set by the IRS, identical to what a salaried worker gets). Crucially, this $24,500 is a flat dollar amount — it does not depend on a percentage of his income. As long as he earned at least that much, he can defer the full $24,500. Door number two is the employer contribution, called the profit-sharing contribution — and this is the exact same employer contribution a SEP makes, calculated the exact same way: 20% of his net earnings, which we already computed as $15,799. So watch what the two hats do when you add them:

Forty thousand, two hundred ninety-nine dollars. Compare that to the SEP's $15,799 on the identical $85,000 of income, and the difference is staggering — the Solo 401(k) lets DeShawn shelter $24,500 more than the SEP does, which is to say exactly the amount of the employee deferral. That's not a coincidence; it's the whole mechanism. The SEP only ever uses the employer hat (the $15,799 piece). The Solo 401(k) uses both hats, adding the flat $24,500 employee deferral on top of the very same $15,799 employer piece. Same income, same person, same 20%-of-net-earnings employer math — the Solo 401(k) simply gives DeShawn a second door the SEP doesn't have, and that door is worth $24,500. For a person earning a freelancer's middle income, this is the single most important fact in the lesson, and we'll see in §4 exactly why the advantage is so large at his income and where it eventually disappears.

Two limits hold the total in check, and it's worth naming them so the bigger numbers later make sense. The first is that the employee deferral and the employer contribution together cannot exceed the annual-additions limit — $72,000 in 2026, the same figure from §1.2. DeShawn's $40,299 is comfortably under it, so both his doors are wide open. The second is that the employer profit-sharing piece is still capped at 20% of net earnings (for a sole proprietor) — the Solo 401(k) doesn't change that calculation at all; it just adds the deferral alongside it. So the Solo 401(k)'s limit isn't "unlimited" — it's "the employer math you already did, plus a flat $24,500 employee deferral, all capped at $72,000." For most self-employed people at most income levels, that combination shelters dramatically more than a SEP, and it does so for the simplest possible reason: two hats beat one.

§3.2 — The Roth option and the catch-ups the SEP can't match

The bigger limit is the Solo 401(k)'s headline feature, but two more advantages matter enough that they often settle the choice on their own. The first is the Roth option. With a SEP, DeShawn's contributions are essentially always traditional — pre-tax going in, taxed coming out (a Roth SEP technically became legal under recent law, but almost no provider actually offers one, so in practice a SEP means traditional). A Solo 401(k), by contrast, almost always lets him designate his employee deferral as Roth: he pays tax on that money now and it grows and comes out completely tax-free in retirement. That's the Roth bargain from the earlier account lessons, and for a younger freelancer like DeShawn — 33, possibly in a lower tax bracket now than he'll be in his peak earning years — the ability to lock in today's tax rate on a chunk of his retirement savings is genuinely valuable. The whole pre-tax-versus-Roth decision (which bet on your future tax rate makes sense) got its full treatment in the earlier 401(k) and IRA lessons and the logic is identical here; the point for this lesson is simply that the Solo 401(k) gives him the Roth door and the SEP, in practice, doesn't.

A couple of honest footnotes on the Roth side, because the rules shifted recently. The employer profit-sharing piece can now also be designated Roth under a 2022 law (SECURE 2.0), but it's taxable to you in the year you make it and most solo providers still don't support it, so treat employer-Roth as a rare bonus, not a given. And there's a newer wrinkle aimed at high earners: starting in 2026, catch-up contributions (the extra amounts we're about to describe) must be made as Roth if your prior-year wages topped about $150,000 — a rule that mostly affects higher earners paid a W-2 wage, with the IRS still finalizing exactly how it applies, and one that doesn't touch DeShawn at his income. We flag it for completeness, not because it changes his decision. One genuinely nice Roth-side fact does apply broadly, though: money in a Roth Solo 401(k) has no required minimum distributions in your lifetime — you're never forced to start pulling it out at a certain age — which makes it a clean, flexible place for tax-free growth to compound as long as you like.

The second extra advantage is the catch-up contribution, and it's pure upside for older savers. The SEP has no catch-up at all — its limit is the same whether you're 30 or 60. A Solo 401(k), because it has that employee-deferral door, also has the standard 401(k) catch-ups: once you turn 50, you can defer an extra $8,000 on top of everything else, and in a special window from ages 60 through 63, that catch-up jumps to $11,250 (this larger "super catch-up" replaces the $8,000 in those four years — it doesn't stack on top of it, a point people get wrong constantly). These catch-ups sit ON TOP of the $72,000 annual-additions limit, not inside it, so an older self-employed person with the income to use them can push their real maximum to $80,000 at age 50-plus, or $83,250 in the 60-to-63 window. DeShawn, at 33, can't use these yet — but they're a concrete reason the Solo 401(k) ages better than the SEP. The account that already shelters more of his money at 33 will shelter even more, relative to a SEP, once he's old enough for the catch-ups. The SEP simply never gets those doors.

§3.3 — The deadline trap, the $250,000 form, and the spouse bonus

The Solo 401(k)'s power comes with exactly one rule you cannot afford to get wrong, and it's a timing rule that catches people every spring. It hinges on a distinction the SEP doesn't have to make, because the SEP only has the employer hat while the Solo 401(k) has two hats with two different deadlines. Get this clear and the Solo 401(k) is easy; get it fuzzy and you can lose the bigger contribution that was the whole reason to choose it.

Here's the trap in its cleanest form. The EMPLOYER profit-sharing piece — that $15,799 — follows the same generous deadline as a SEP: you can contribute it as late as your tax-filing deadline, including extensions, the following year. That part is forgiving. But the EMPLOYEE deferral — the $24,500, the door that gives the Solo 401(k) its whole advantage — generally has to be ELECTED by December 31 of the contribution year. You can't normally wait until spring and retroactively decide you deferred $24,500 of a year that's already over, because an employee deferral is something you elect from pay as you go, not after the fact. So the classic, painful mistake is this: a freelancer sets up a Solo 401(k) in March to capture last year's big income, assumes the whole thing follows the SEP's relaxed deadline, and discovers they can only make the employer piece — they forfeited the $24,500 deferral by missing the December 31 election. They got SEP-sized money out of a Solo 401(k) for nothing.

There is one important escape hatch, and it's recent and narrow, so know its exact shape. A 2022 law (SECURE 2.0) created a first-year exception: if you are a sole proprietor with no employees, and you're opening your very first Solo 401(k), you can make your employee deferral for that first year up until your tax-filing deadline — but WITHOUT extensions. So for a brand-new plan covering 2026, a sole proprietor like DeShawn could make the first year's deferral as late as roughly April 2027, even though the year is over. Two cautions that matter: this only works for the plan's FIRST year (after that, the December 31 election rule is back in force), and the extension does NOT help here — an October extension buys you more time for the employer piece, but the first-year employee deferral must be in by the unextended April deadline. The practical upshot for a freelancer: the safest habit by far is to open your Solo 401(k) and get your deferral election in place during the year itself, by December 31, and treat the first-year exception as a one-time safety net rather than a plan. The relaxed deadline you can fully rely on is the employer piece; the employee deferral wants a year-end decision.

Two more pieces of Solo 401(k) housekeeping, both easy. The first is the one annual form, and it only appears once the account gets sizable: when your Solo 401(k)'s total assets cross $250,000 at year-end, you have to file a short IRS form called the 5500-EZ each year (and a final one whenever you close the plan). Below $250,000, there's no annual filing at all. The 5500-EZ is a brief informational return — not a tax payment, just a report — but it's mandatory once you're over the line and the penalties for forgetting are steep, so it's worth a calendar reminder. A SEP, by contrast, never requires this form regardless of size, which is one more point in the SEP's simplicity column. The second piece is a genuine bonus: if you have a spouse who legitimately works in your business, they can participate in the same Solo 401(k) as a second participant — getting their own full $24,500 deferral, their own employer contribution, and their own $72,000 limit — which can roughly double the household's tax-sheltered space while keeping the plan a simple one-participant plan. The catch is that the spouse must be a bona fide employee with real compensation; you can't add a spouse who doesn't actually work in the business. For couples who run a business together, though, it's a powerful way to shelter far more.

One boundary on the "solo" in Solo 401(k), so it doesn't surprise you later: the account is only for a business with no employees other than the owner and a spouse. The moment you hire a regular employee who becomes eligible, the plan stops being a one-participant plan — it turns into a normal company 401(k) with all the testing, employer obligations, and full annual filings that come with covering staff. So the Solo 401(k) and the SEP share the same fork in the road: both are built for the owner-only business, and both have to be rethought the day you take on employees. That shared fork is exactly what §6 picks up. But first, the question this whole section has been building toward — between the simple SEP and the powerful Solo 401(k), which one should DeShawn actually choose? That's a real head-to-head, and it's next.

We now have both accounts on the table, both worked through on DeShawn's exact numbers, and it's time to put them side by side and actually choose. This is where the lesson earns its keep, because the choice is not the toss-up it's often presented as — at most income levels one account is clearly better, for a reason that's easy to see once you've done the math. We'll do three things: settle DeShawn's specific case with the numbers (§4.1), then zoom out to show how the answer changes as income rises — the crossover where the two accounts quietly become the same (§4.2) — and finally handle the honest tie-breakers, the real reasons someone might still pick the SEP even when the Solo 401(k) shelters more (§4.3).

§4.1 — DeShawn's choice: the flat $24,500 that decides it

Lay DeShawn's two results next to each other and the choice almost makes itself. On his $85,000 of net profit, the SEP-IRA shelters $15,799, and the Solo 401(k) shelters $40,299. Same income, same person, same year — a difference of $24,500, which (as we saw) is exactly the employee deferral the Solo 401(k) adds and the SEP can't. Here it is plainly:

The reason the gap is so wide at DeShawn's income is worth saying out loud, because it's the key to the whole comparison: the Solo 401(k)'s extra contribution is a FLAT dollar amount, not a percentage. The employer piece — the only piece a SEP has — is 20% of his earnings, so it scales with income: more profit, bigger employer contribution. But the employee deferral the Solo adds is a fixed $24,500 regardless of income, as long as he earned at least that much. At a freelancer's middle income, that flat $24,500 is huge relative to his earnings — it's nearly a third of his $85,000 profit, sheltered in one stroke that the SEP simply doesn't offer. The lower or more moderate your income, the more decisively the Solo 401(k) wins, because the flat deferral is large compared to the percentage-based employer piece. For DeShawn, the Solo 401(k) isn't a little better. It lets him shelter more than two and a half times as much.

Now an honest reality check, because $40,299 is a ceiling, not a forecast. DeShawn can't actually contribute $40,299 on an $85,000 income — after living expenses, his student loan, and the self-employment tax he owes, his realistic investing budget is closer to $1,200 a month, about $14,400 a year, once his emergency fund is solid. And here's the thing: $14,400 fits inside BOTH accounts (it's under even the SEP's $15,799 cap). So at his current saving rate, the choice of account doesn't change how much he can put in this year — both hold what he can afford. Why, then, does the Solo 401(k) still win for him? Three reasons that outlast any single year. First, headroom for the good years: in a strong $115,000 year, the Solo lets him shelter up to $45,875 versus the SEP's $21,375 — so when a windfall or a great stretch arrives and he can finally save aggressively, the Solo has room and the SEP runs out. Second, the Roth option and (later) the catch-ups, which the SEP lacks entirely. Third, a clean path to the backdoor Roth, which we'll explain in a moment. The Solo 401(k) is the account that won't constrain him as his income and savings grow — and growing is the plan.

To make the headroom tangible without overstating it: a single maxed year illustrates the stakes. If DeShawn could contribute his full $40,299 in one strong year and leave it to grow for 30 years at an illustrative 6% annually (illustrative — markets don't deliver a smooth 6%, and this is a teaching figure, never a promise), that one year's contribution becomes about $231,457. The same year capped at the SEP's $15,799 becomes about $90,741. The account choice alone — for one year's contribution — accounts for roughly $140,716 of difference three decades later. He won't max every year, and he shouldn't stress about the years he can't. But the example shows why you want the account with the bigger door: in the years you CAN save more, you want somewhere to put it.

§4.2 — The crossover: where the two accounts become the same

DeShawn's case makes the Solo 401(k) look like it always wins, and at low and moderate incomes it essentially does. But the story has a second act at the top end, and it's worth seeing because it teaches what the limits are really doing. To show it, meet a different kind of self-employed person — and to be clear, she's a fresh illustrative figure introduced just for this high-income angle, not a recurring character. Renée Boudreaux is 44, a self-employed management consultant in Denver who runs a one-person practice and clears about $400,000 in net profit a year. She's in a completely different financial universe from DeShawn, and watching the two accounts on her numbers reveals where they stop differing.

At Renée's income, both accounts run into the same ceiling. Recall the two caps: the employer/profit-sharing piece is 20% of net earnings, and the total of everything can't exceed $72,000 (the annual-additions limit), with the income the percentage applies to itself capped at $360,000 (a separate limit the tax code sets). Run her numbers and 20% of her capped earnings comes to a full $72,000 all by itself — taken alone, her employer contribution would fill the entire ceiling. For her SEP, that's the end of the story: $72,000, maxed. For her Solo 401(k), something subtle happens — she still makes her $24,500 employee deferral, but because the total can't exceed $72,000, the employer piece gets crowded down to just $47,500 to fit ($24,500 + $47,500 = $72,000). The flat employee deferral that won her so much room at lower incomes now merely displaces an equal slice of employer contribution; it stops ADDING to the total. So her Solo 401(k) also lands at exactly $72,000 — the same as her SEP. Two very different accounts, the identical result:

So here is the shape of the whole comparison, the thing to actually remember. At low and moderate incomes, the Solo 401(k) beats the SEP by the full $24,500 of the employee deferral — a flat, large advantage that doesn't shrink as long as the total stays under the $72,000 cap. As income climbs high enough that the 20% employer piece alone starts filling the $72,000 ceiling (which happens around $237,500 of net earnings), the Solo's advantage begins to shrink, because there's less and less room left for the employee deferral to add anything. And once the employer piece alone reaches the full $72,000 — around $360,000 of net earnings — the two accounts deliver exactly the same number, because both are simply maxing the same ceiling. Above that point, for a saver under 50, the SEP and the Solo 401(k) are contribution-equivalent. The Solo 401(k) wins big at the bottom, wins less in the middle, and ties at the very top.

One asterisk keeps the Solo 401(k) ahead even at the top for older savers, and it's the catch-up from §3.2. Those catch-up contributions ($8,000 at 50-plus, $11,250 in the 60-63 window) sit ON TOP of the $72,000 cap and belong only to the Solo 401(k). So a 55-year-old high earner maxing both the employer and employee pieces can push a Solo 401(k) to $80,000 while the SEP stays stuck at $72,000 — the convergence is only a tie for people under 50. Renée, at 44, hits the clean tie; the same Renée at 55 would see the Solo pull ahead again by $8,000. The general rule survives intact: the Solo 401(k) is never worse than the SEP on contribution room, ties it only at high income under 50, and beats it everywhere else — often by a lot.

§4.3 — The honest tie-breakers: when the SEP is still the right call

If the Solo 401(k) is never worse on contribution room and usually much better, why does the SEP exist at all — and why do plenty of sensible self-employed people choose it? Because contribution room isn't the only thing that matters, and on the other dimensions the SEP genuinely wins. This is a real decision with honest trade-offs, not a trick question with one right answer, so let's lay out the case for each fairly.

The SEP's case is simplicity, and for some people that's decisive. It's the easier account to open, it has zero annual paperwork no matter how large it grows (no 5500-EZ ever), and its single deadline — fund it all by your extended tax-filing date — has no December 31 election to remember and no first-year trap to navigate. If you're someone who knows you'll never come close to contributing more than the employer piece anyway — say your realistic savings are well under 20% of your income — then the Solo 401(k)'s extra room is headroom you'll never use, and you'd be taking on its paperwork and its deadline rule for a door you won't walk through. For that person, the SEP isn't a compromise; it's the cleaner tool for the job. Simplicity has real value, and pretending it doesn't is how people end up with accounts more complicated than their lives require.

The Solo 401(k)'s case is everything else: more room (decisively, at most incomes), the Roth option, the catch-ups, the ability to borrow from the plan if your provider allows it, and one more advantage that matters specifically for higher earners — its friendliness to the backdoor Roth. Here's the connection, kept brief because the backdoor Roth is fully Lesson 24's job. A backdoor Roth is a maneuver high earners use to get money into a Roth IRA despite income limits, and it works cleanly only if you don't hold a large pre-tax IRA balance. A SEP-IRA counts as exactly that kind of pre-tax IRA balance, so it can gum up a backdoor Roth and make it mostly taxable. A Solo 401(k) does NOT count — it sits outside that calculation entirely. So for a self-employed person who is, or expects to be, a high earner doing backdoor Roths, the Solo 401(k) keeps the path clear while a SEP can block it. It's a niche point, but it's a real one, and it's another reason the Solo 401(k) tends to be the better long-term home even when this year's contribution would be identical.

So how should DeShawn actually decide? For him, and for most self-employed people earning a freelancer's or a moderate income, the Solo 401(k) is the stronger choice: it shelters far more of his money ($40,299 versus $15,799), it gives him the Roth option that suits a younger saver, it keeps his backdoor-Roth path clear if his income grows, and the only thing it costs him is a December-31 election to remember and a single form once the balance crosses $250,000 — modest prices for a door worth $24,500 a year. The SEP would be the right call mainly if he valued absolute simplicity above all and was certain he'd never want to save more than the employer piece. Knowing his income is variable and his savings should grow, the Solo 401(k) is the account that won't box him in. The genuinely important thing, though — bigger than SEP-versus-Solo — is that he opens one of them at all, because the worst account by far is the one that doesn't exist. Both crush a bank account earning nothing. With the account chosen, the last real problem is the one his salaried friends never face: how do you fund any of this when your income arrives in unpredictable lumps?

There's a reason the no-employer reality feels hardest right here, at the moment of actually putting money in. A salaried person's retirement saving is frictionless precisely because it's involuntary — the payroll system takes the contribution before the money ever reaches them, every two weeks, in the same amount, automatically. They never have to decide, never have to have the cash on hand at the right moment, never have to resist spending it first. The self-employed person has none of that machinery. Their income arrives in irregular lumps — a big invoice here, a dry month there — and every contribution is a deliberate act of moving their own money out of an account they can see and into one they can't easily touch. The discipline that an employer's payroll quietly supplied now has to be self-supplied. This section is about rebuilding that discipline by hand, and it splits into two beats: the mindset and machinery that replace the missing payroll (§5.1), and the specific mechanics of funding a plan from income that won't sit still (§5.2).

§5.1 — "Can someone like me even do this?" — rebuilding the discipline the employer used to provide

Meet Jordan Lee, because Jordan asks the question this whole section exists to answer. Jordan is 27, lives in Nashville, and earns money through gig apps — DoorDash, TaskRabbit, whatever's busy that week. Income is genuinely unpredictable: a good week clears over a thousand dollars, a slow one barely six hundred, and it averages somewhere around $41,000 a year before expenses. Jordan has no retirement account, a thin $1,200 in savings, and — the part that shapes everything — an $8,000 credit-card balance at nearly 25% interest. When Jordan reads a lesson about SEP-IRAs and Solo 401(k)s with their $72,000 ceilings, the honest reaction is a kind of flinch: this isn't for me. Those are accounts for people with steady money and spare thousands. Can someone like me even do this?

The answer is yes — but with an important piece of honesty attached, because getting the order right matters more than enthusiasm. For Jordan specifically, retirement investing is not the first move. That credit card at 25% is costing more, guaranteed, than any investment can reliably earn, so paying it off comes first — it's the equivalent of a guaranteed 25% return, and it's the priority. (The full sequence of which dollar goes where — debt, emergency fund, retirement, and in what order — is the priority waterfall, and it's Lesson 11's entire job; we're pointing back to it, not re-deciding it here.) So the genuine answer to "can someone like me do this?" is: yes, absolutely, AND the smart version of doing it starts with clearing that high-interest debt and building a small cushion first. The accounts in this lesson will still be here, free to open, the day Jordan is ready. Nothing about being a gig worker locks Jordan out.

And here's the genuinely reassuring part, the thing that dissolves the flinch: the barrier to entry is almost nothing. You do not need $72,000, or $7,000, or any particular sum. You can open a SEP-IRA or a Solo 401(k) for free and fund it with whatever you can spare — fifty dollars after a good week, a few hundred after a strong month. The big limits are ceilings, not entry fees. The accounts don't care that Jordan's income is lumpy or modest; they'll hold a $200 contribution as happily as a $20,000 one. The fear that these accounts are "for other people" is the same shape as the fear in the intro — it assumes the system was built for the salaried and merely tolerates everyone else, when in fact these accounts were built specifically for people without employers. Jordan is exactly who they're for.

The real work, once the debt is handled, is rebuilding the discipline that payroll used to provide — and the tool for that is the one we met all the way back in the emergency-fund lesson: the automatic transfer. Jordan can set up a recurring automatic transfer from checking into the retirement account, scheduling the machine to do what an employer's payroll once did — move the money before it can be spent. The amount can be modest and it can be adjusted, but the automation is the point: it converts saving from a willpower problem (remembering, every lump, to manually move money you can see) into a default that happens on its own. This is the self-employed person rebuilding, by hand, the single most valuable thing the missing employer took — the invisibility of the contribution. You can't get payroll back, but you can build your own version of it, and it works for nearly the same reason: money you never see in your spending account is money you don't miss.

§5.2 — The mechanics: contribute in the strong months, true up before the deadline

Automation handles the steady baseline, but lumpy income needs one more technique that a salaried worker never has to think about: how to size contributions to a year you can't predict in advance. The danger with variable income is symmetric. Contribute too aggressively early in the year and a dry autumn can leave you short on rent, tempted to pull the money back out. Contribute too timidly and you reach December having sheltered far less than you could have afforded. The self-employed person needs a way to stay flexible through the year and still land near their real maximum — and the accounts in this lesson, especially the SEP, are built to allow exactly that.

The technique has a simple shape: contribute conservatively in the strong months, and "true up" at the end once you know the year. Concretely, DeShawn might set his automatic transfer at a deliberately cautious level — an amount he can sustain even in a lean stretch — and then, in the months when a big invoice lands, add a one-off extra contribution on top. Then, after the year closes and his profit is known, he runs the §2.2 worksheet, sees his real maximum, and makes one final "true-up" contribution to close the gap between what he's put in so far and what he can afford up to that maximum. This is where the SEP's forgiving deadline becomes a practical superpower rather than a trivia point: because a SEP can be funded as late as the following fall, DeShawn can make that true-up contribution in early 2027 for the 2026 tax year, with full hindsight, using money from a year he's actually finished. He never has to guess. He saves what's comfortable along the way, then tops up at the end with the benefit of knowing exactly how the year went.

The SEP's flexibility runs deeper than just the deadline, and it's the quiet reason many freelancers love it for variable income: there is no minimum and no obligation. In a brutal year, DeShawn can contribute nothing at all to a SEP and owe no one an explanation — the contribution is entirely discretionary, year by year. In a banner year, he can fund it up to his full maximum. The account flexes with his income instead of demanding a fixed amount, which is exactly what unpredictable earnings need. The Solo 401(k) shares most of this flexibility for the employer piece, with the one wrinkle we've already met — its employee deferral wants that December 31 election — so the cleanest habit for a Solo 401(k) is to keep a modest deferral election running all year (even a small percentage), which preserves the employee door, and then handle the larger profit-sharing piece as a flexible, hindsight-funded true-up just like the SEP. Either way, the principle is the same: let the strong months carry the load, stay light in the lean ones, and settle up at the end.

Step back and notice what all of this really is. The salaried worker's retirement saving is easy because it's rigid — same amount, every paycheck, no decisions. The self-employed person can't be rigid, so they have to be something better: deliberate. Automation to replace the payroll reflex, conservative baselines to survive the lean months, opportunistic extra contributions when the money's flowing, and a year-end true-up with full hindsight to land near the maximum. It's more thinking than a salaried person ever does about retirement — but it comes with the bigger limits, the control, and the forgiving deadline that the salaried person never gets. The discipline is yours to supply, and once you've built the habit, lumpy income stops being a barrier and becomes just a rhythm you've learned to save inside of.

Two things are left to close the loop. The first is the question both main accounts kept deferring — what happens when a one-person business stops being a one-person business and hires someone — because there's a third account built precisely for that moment, and a complete picture of self-employed retirement saving has to name it (§6.1). The second is the consolidation this lesson has been building toward: the cast laid side by side, so you can find the situation closest to yours and see what it actually asks of you (§6.2).

§6.1 — The SIMPLE IRA: the account for "I have a few employees now"

Both the SEP and the Solo 401(k) hit the same wall the day you hire eligible employees. The Solo 401(k) stops being "solo" and becomes a full company 401(k) with testing and filings. The SEP keeps working, but its same-percentage rule means matching your own generous contribution for every employee out of your pocket. So what does a small business with a handful of employees actually use? Most often, the answer is a third account designed exactly for that in-between size: the SIMPLE IRA. It's worth a short, honest contrast here — not a full treatment, just enough to know it exists and roughly where it fits — because the moment a freelancer thinks about hiring, this is the account that enters the conversation.

SIMPLE stands for Savings Incentive Match Plan for Employees, and it splits the difference between an IRA and a 401(k) for small employers (generally those with 100 or fewer employees). Unlike a SEP, a SIMPLE IRA does let employees defer their own pay — in 2026, up to $17,000 of it (with a $4,000 catch-up at 50-plus, and somewhat higher limits for the smallest employers under recent rules). And the employer's obligation is lighter and more predictable than a SEP's: instead of matching whatever big percentage the owner gives themselves, the employer chooses between a modest 3%-of-pay match for employees who contribute, or a flat 2%-of-pay contribution for everyone eligible. That capped, predictable employer cost is the whole appeal — it lets a small business offer a real retirement plan with employee deferrals without the SEP's same-percentage exposure or a full 401(k)'s complexity. The trade-offs are real, too: SIMPLE deferral limits are lower than a 401(k)'s, the employer match is mandatory every year (not discretionary like a SEP), and there's a stiff penalty for pulling money out in the plan's first two years. But for the owner who has crossed from solo into "a few employees," the SIMPLE IRA is usually the natural next account — the bridge between the owner-only world of this lesson and the full company 401(k) of Lesson 16.

For DeShawn, today, this is purely a someday note: as long as he's solo, the Solo 401(k) is his account, and the SIMPLE IRA isn't in play. But it changes the meaning of the §2.3 hire trap. Hiring an employee doesn't end his ability to offer retirement saving — it just moves him to a different, employee-friendly account. The progression across a self-employed life is clean: solo, you use a SEP or a Solo 401(k); a few employees, you graduate to a SIMPLE IRA; a larger payroll, you move up to a full 401(k). Each account is built for a size of business, and growing out of one simply means stepping up to the next. Knowing that takes the fear out of the hire trap — it's not a dead end, just a doorway to the next account.

§6.2 — Which one is you?

This lesson met several versions of the self-employed life, and the right move was different for each. Here they are together, so you can find the one closest to your own situation and see what it actually asks.

DeShawn — the freelancer with a moderate, variable income: open a Solo 401(k). At 33, earning about $85,000 in net profit as an Atlanta web developer, the math is decisive — a Solo 401(k) lets him shelter up to $40,299 (a flat $24,500 employee deferral plus a $15,799 employer contribution, which is 20% of his net earnings) versus a SEP's $15,799 on the identical income. He won't fill that ceiling at his realistic $14,400-a-year saving rate, but the Solo 401(k) gives him the Roth option suited to a younger saver, room to save hard in his strong years, and a clear backdoor-Roth path if his income climbs — for the price of a year-end deferral election and one form once he crosses $250,000. His habit: keep a small automatic deferral running all year, then true up the employer piece after the year closes with full hindsight. His lesson: at a freelancer's income, the flat employee deferral makes the Solo 401(k) shelter more than two and a half times what a SEP can.

Jordan — the gig worker, lumpy income, just starting: yes, this is for you — but get the order right. At 27 in Nashville, earning around $41,000 through gig apps with a $8,000 card at nearly 25% interest, Jordan's first move isn't a retirement account at all — it's clearing that high-interest debt and building a small cushion, because paying off 25% debt is a guaranteed return no investment beats (the full order is Lesson 11's priority waterfall). When Jordan is ready, the accounts open for free and accept whatever can be spared — fifty dollars after a good week, not a heroic sum. The right tool for unpredictable income is an automatic transfer set at a level that survives the lean weeks, topped up after the strong ones. Jordan's lesson: being a gig worker doesn't lock you out of these accounts — they were built for people without employers — it just means you supply the discipline an employer's payroll used to, and you start the day the higher-interest problems are handled.

Renée — the high earner: at this income, SEP and Solo are nearly a tie, so let other features break it. The Denver consultant clearing about $400,000 hits the $72,000 annual-additions ceiling in either account — her 20% employer contribution would fill it on its own, so in her Solo 401(k) the $24,500 employee deferral simply displaces an equal slice of employer room rather than adding to the total, and both accounts land at exactly $72,000. With contribution room equal, the decision turns on everything else: the Solo 401(k) still wins for its Roth access, its catch-ups (which would let her exceed $72,000 once she turns 50, something the SEP can never do), and its clean backdoor-Roth compatibility; the SEP wins only if she prizes zero paperwork above those features. Her lesson: the Solo 401(k)'s contribution advantage shrinks to zero at the top, but its other advantages don't — and for a high earner who may also be doing backdoor Roths, keeping a SEP-IRA balance off the books is itself a reason to favor the Solo 401(k).

The owner who's about to hire: your account is about to change, and that's fine. The day an employee becomes eligible, a Solo 401(k) turns into a full company 401(k) and a SEP forces you to fund the same percentage for staff that you give yourself — so a growing business usually steps over to a SIMPLE IRA, the account built for a handful of employees, with its lower-cost predictable employer match. The lesson: growing out of an owner-only account isn't a problem to dread; it's just a step up to the next account in the sequence — SEP or Solo while you're alone, SIMPLE with a few employees, a full 401(k) with a real payroll.

And if none of these is exactly you, the through-line holds regardless of which self-employed life you're living. The no-employer reality is real but smaller than it feels: nobody sets the account up for you, and that's the only thing actually missing. In exchange you get limits up to $72,000 instead of $24,500, total control of provider and fees, and a deadline forgiving enough to fund with hindsight. Pick an account — the Solo 401(k) for most people, the SEP if simplicity is everything — open it for free in twenty minutes, automate a contribution to replace the payroll you don't have, and true up at the end once you know your year. The starting gun is the only thing nobody will fire for you. Fire it, and everything a 401(k) does, your account does too.

The self-employed person has a specific vulnerability that the scams in this corner are built to exploit: there is no employer, no HR department, no plan administrator standing between you and a bad decision. A salaried worker's 401(k) lives inside a vetted company plan with a fiduciary watching it; your SEP-IRA or Solo 401(k) is yours alone, and the only person checking whether a pitch is good for you is you. That's not a reason for fear — it's a reason to learn the three patterns that target this exact situation, because once you can name them, they lose their power. And none of what follows is your fault to catch unaided; these operations are designed to look legitimate, often dressed up in the language of sophistication and tax savings.

The "self-directed" alternative-asset pitch

The signature scam aimed at self-employed savers takes a genuinely real thing — that a Solo 401(k) or a self-directed IRA can technically hold assets beyond index funds — and weaponizes it. A promoter pitches a "self-directed" or "checkbook control" Solo 401(k) that will let you invest your retirement money in gold, cryptocurrency, a friend's startup, raw land, or a rental property, framed as the insider move that ordinary 401(k) investors are too unsophisticated to access. Two things make this dangerous. First, these arrangements are riddled with "prohibited transaction" landmines — IRS rules about what your retirement account can and can't do with people and businesses connected to you — and a single misstep can disqualify the entire account, triggering taxes and penalties on the whole balance at once. Second, the alternative assets themselves are frequently the real product being sold: overpriced gold, a fraudulent crypto platform, a "can't-miss" private investment that exists mainly to separate you from your savings. The tell is the framing — anyone selling secrecy, exclusivity, or "what the big firms don't want you to know" is selling a story, not a sound retirement plan. The honest version of these accounts, the one this lesson teaches, holds plain low-cost index funds and is gloriously boring.

The "plan facilitator" who charges for free

A gentler but common rip-off: a company offers to "set up your Solo 401(k) for you" for a setup fee of several hundred to a couple thousand dollars, plus ongoing annual administration fees — for an account you can open for free, in about twenty minutes, at Fidelity, Schwab, Vanguard, or any other major low-cost brokerage. Sometimes the paid version comes bundled with the self-directed alternative-asset features above, which is how the two scams meet. There are narrow cases where a paid third-party plan document makes sense (a solo business that genuinely needs a feature the free plans lack, like certain loan or after-tax provisions), but for the ordinary freelancer who wants index funds, paying a facilitator is paying for something the brokerage gives away. Before you pay anyone a setup or maintenance fee for a SEP or Solo 401(k), confirm whether a free brokerage version does what you need — it almost always does.

The rollover-and-replace pitch

The third pattern targets money already in motion: a salesperson urges you to roll an old 401(k), or your existing SEP, into a new account they manage — and then places it into a high-commission annuity, a high-fee managed product, or the alternative assets above. The conflict is the same one that runs through every account lesson: the person urging the move often earns a commission or an ongoing fee for it, while leaving your money in a cheap index fund earns them little or nothing. The defense is unchanged: before moving a dollar, get every fee — theirs and the product's — in writing, as a percentage and in actual dollars, and compare it to what you'd pay to simply hold index funds yourself. A pitch that won't put the total cost on paper is telling you something.

Verifying anyone before you trust them with this money is free and takes minutes, and for the self-employed it's doubly important because no employer vetted them for you. Check a securities professional or investment adviser in FINRA's BrokerCheck (brokercheck.finra.org) and at the SEC's Investor.gov / IAPD (adviserinfo.sec.gov) — these show licensing, history, and, the part that actually matters, any disclosure events and regulatory actions. If the pitch involves an annuity or insurance product, verify the agent separately through your state's Department of Insurance or the NAIC's lookup (sbs.naic.org), because an insurance-only agent won't appear in BrokerCheck at all. Verification confirms registration, not goodness — the disclosure section is where the real information lives.

To report a problem: the SEC takes tips and complaints at Investor.gov (and its TCR system); FINRA handles complaints about brokers; the FTC takes any fraud report at ReportFraud.ftc.gov — you can report even if you lost nothing, and the report feeds a database thousands of law-enforcement agencies use. For a prohibited-transaction problem or a tax question on a self-directed account gone wrong, the IRS is the relevant authority, and a fee-only CPA or tax attorney is worth far more than the promoter who got you there. The most important line is the same one the regulators lead with: if something feels wrong, don't let embarrassment keep you quiet. The self-employed are targeted precisely because they're handling this alone and may feel they should have known better — but reporting protects the next freelancer at least as much as it protects you, and you don't owe anyone your silence.

If you came into this lesson already self-employed and carrying some quiet guilt about how you've handled retirement — you haven't started at all, or you opened the "wrong" account, or you put in too much one year and panicked, or you've simply been meaning to deal with this for three years — this part is for you, and it carries no lecture. The no-employer reality means there was never a system nudging you to get this right, so getting it imperfectly, or not at all yet, is the overwhelmingly common case, not a personal failing. Almost everything here is fixable, and most of it is fixable cheaply and soon.

If you haven't started at all

This is the most common situation and the easiest to fix, so set down the dread. The money you didn't shelter in past years is genuinely gone — you can't retroactively fund a SEP for 2022 — but that's a sunk cost, and staring at it changes nothing. What you control is everything from here, and "here" is a remarkably good place to start: you can open a SEP-IRA or a Solo 401(k) for free this week and, thanks to the forgiving deadline, potentially still make a contribution for last year if you haven't filed yet. The most powerful step isn't catching up on the past; it's starting the automatic contribution that makes the future happen on its own. Years of not-saving don't compound against you the way the regret implies — but years of saving, started now, compound for you.

If you opened a SEP and now think a Solo 401(k) would've been better

First, a SEP is a perfectly good account, not a mistake — you sheltered money in a tax-advantaged account, which is the part that matters. If you've now realized the Solo 401(k) would let you shelter more (the §4 story), you're not stuck: you can open a Solo 401(k) going forward, and you can generally roll your existing SEP-IRA balance into it, which has the added benefit of clearing that pre-tax SEP balance out of the way of a clean backdoor Roth. There's no penalty for having used a SEP first. The one thing to handle deliberately is timing the rollover and the new plan correctly, which a brokerage or a fee-only advisor can walk you through. Switching up is routine, not a confession.

If you contributed too much

Over-contributing is the specific risk the §2.2 worksheet exists to prevent — using the 25% headline instead of the 20% sole-proprietor rate, or simply guessing high — and if it's already happened, it's a correctable problem, not a disaster. An excess contribution left in place draws a 6% excise tax for each year it stays, but you generally have until your tax deadline (including extensions) to fix it by withdrawing the excess plus any earnings on it, which removes the penalty. The move is to catch it early and act before the deadline: run the worksheet, find your true maximum, and have the excess (and its earnings) removed by your provider. A tax professional makes this clean and is well worth it for the peace of mind. The lesson for next year is just to run the six lines rather than trust the brochure.

If you missed the employee-deferral deadline

If you set up a Solo 401(k) in the spring expecting to make the full $24,500 employee deferral for last year and discovered the December 31 election rule too late (the §3.3 trap), the deferral for that year is likely gone — but the employer profit-sharing piece usually isn't, since it follows the extended deadline. So you may still be able to make that contribution, salvaging a meaningful part of the year. And the fix going forward is simple and permanent: get a deferral election in place now for the current year, even a small one, so the door stays open. One missed deferral is a single year's lost room, not a recurring loss — set the election and it won't happen again.

The thread through all of these: the no-employer reality means nobody was going to catch your mistakes for you, which also means the mistakes are ordinary and the fixes are within reach. You don't have to resolve everything in one sitting. Open the account, start the automatic contribution, fix any excess before the deadline, and get a deferral election running — and the part of this story that decides how your retirement actually goes is the part you're still writing, starting now.

The move

DeShawn mentions to someone — a financial salesperson at a networking event, a firm that advertises to freelancers, a "retirement specialist" who found him online — that he's self-employed and hasn't set up a retirement account. The offer comes back warm and helpful: "You need a Solo 401(k) — let me set the whole thing up for you and handle the contributions, so you don't have to figure out all those IRS rules." It sounds like exactly the help a busy freelancer wants: someone to take the confusing paperwork and the scary-sounding limits off his plate. That feeling — relief at handing off a chore he's been avoiding — is precisely what the move runs on. Here's the machinery underneath the warmth.

What's actually being proposed

"Set up your retirement plan" can mean two very different things, and the pitch quietly fuses them. The benign version is opening a free, standard Solo 401(k) at a major brokerage and putting the money in low-cost index funds — something DeShawn can do himself in twenty minutes. The version that pays the salesperson is opening a plan through a paid facilitator (a setup fee plus annual administration charges, for an account that's free elsewhere) and steering the money into commission-bearing products: a managed account with an ongoing percentage fee, an annuity inside the retirement account, or the "self-directed" alternative assets from the Scam Radar. The word "set up" makes it sound like a one-time clerical favor. What's often being proposed is a permanent relationship with recurring fees attached to money that could have sat in an index fund for almost nothing.

What's in it for them

Follow the money. There's the upfront setup fee for the plan document; the annual administration fee; and the big one, an ongoing fee on the invested assets — often around 1% a year of everything in the account, or a commission baked into an annuity or fund. On a retirement balance that compounds for decades, a 1% annual drag quietly removes a large share of the final total, the same fee-drag math the earlier account lessons worked through in detail. The salesperson isn't necessarily lying about anything; they're just not volunteering that the "help" attaches a recurring cost to DeShawn's savings forever, in exchange for a setup he could have done himself for free. And this connects to the fiduciary question from the advisor lessons: a commissioned salesperson is not necessarily a fiduciary — not legally bound to put DeShawn's interest first — which is exactly the difference between this person and a fee-only fiduciary who charges a transparent flat fee and isn't paid by the products they recommend.

Legit vs. not — the spectrum

This is not a story where everyone offering help is a crook, and saying so plainly is what makes the real warning land. There is genuinely valuable professional help for the self-employed, and it's worth paying for: a fee-only CPA or a fee-only fiduciary advisor who runs the §2.2 contribution worksheet correctly, advises on the sole-proprietor-versus-S-corp decision, coordinates the retirement plan with quarterly estimated taxes, and charges a transparent fee for that expertise — that person earns their fee, because the self-employed tax-and-retirement picture is genuinely complex and a good professional saves you more than they cost. The villain is narrow and specific: the salesperson who charges to "set up" a free account and then attaches ongoing product commissions or AUM fees to index funds you could hold yourself. The problem isn't getting help; it's paying recurring investment fees dressed up as a one-time setup favor.

The DIY substitute

Here's the reassuring part the pitch obscures: the thing being offered as a service is mostly something DeShawn can do himself, for free. Opening a SEP-IRA or a Solo 401(k) at a major low-cost brokerage takes about twenty minutes online; the brokerage handles the plan document at no charge; and choosing the investment is, for most people, a single low-cost index fund or target-date fund. The genuinely hard part — the contribution math — is exactly what this lesson's §2.2 worksheet (and any decent tax software) handles, and what a fee-only CPA can confirm for a flat fee at tax time without taking a percentage of his savings forever. The salesperson's real value-add isn't access — DeShawn already has access — it's the appearance of having someone handle it, priced as an ongoing slice of his retirement.

The questions that expose it

DeShawn doesn't have to judge the salesperson's character. He just has to ask four plain questions and listen for whether the answers come back clear or slippery. "Are you a fiduciary, in writing, legally required to act in my best interest?" (A fee-only fiduciary says yes plainly; a commissioned salesperson deflects toward "I always do right by my clients.") "Is there a setup fee or annual administration fee, and could I open this same account for free at a major brokerage?" (This separates the free account from the paid one.) "What is the total ongoing cost — every fee combined — as a percentage and in actual dollars on my balance each year?" (Vagueness here is the tell; a 1% answer next to an index fund's near-zero answers itself.) "Will my money go into plain low-cost index funds, or into an annuity, a managed account, or alternative assets?" (This surfaces where the commissions hide.) The decode, in one line: "Let me set up your plan" can mean a free favor you could do yourself in twenty minutes, or it can mean let me attach a permanent fee to your retirement for opening an account that's free everywhere else — and those four questions tell you which, faster than the salesperson's friendliness ever could.

If this lesson left you with a low background hum of anxiety — that being self-employed means you're permanently behind on retirement, that the math is too complicated for you to ever get right, or that the lack of an employer doing this for you is a hole you'll never climb out of — it's worth taking a moment to set that weight down, because the real picture is far kinder than the worry.

Start with the fear of being behind, because it's the loudest one. You are not behind for lack of a 401(k); you have access to accounts that are, if anything, more generous than the one your salaried friends got. A regular employee can shelter about $24,500 of their own money this year. Through a Solo 401(k), a self-employed person can shelter up to $72,000 — and DeShawn, on his $85,000 income, can put away $40,299 in a Solo 401(k) against just $15,799 in a SEP, more than two and a half times as much, simply because he wears both the employee and employer hats. The accounts aren't a consolation prize for people without employers. They're some of the largest tax shelters in the entire system, and they belong to you precisely because you run your own business.

Then the fear that the math is beyond you. It isn't — and you don't even have to do it by hand. The one genuinely tricky calculation, the 20%-of-net-earnings worksheet, is six lines long, it's the same six lines every year, and any tax software or any competent CPA runs it for you automatically. The decision that actually matters is short and this lesson already handed it to you: open a Solo 401(k) (or a SEP if you value pure simplicity), pick a low-cost index fund or a target-date fund, and automate a contribution you can sustain. You don't have to master the tax code. You have to open one account and start one automatic transfer — both of which take an afternoon, once.

And the fear that the missing employer is a hole you can't fill. The honest truth from §1 is that only one thing is actually missing — nobody sets the account up for you — and that one thing is the most fixable part of the whole picture. The match, the payroll deduction, the automatic enrollment: you rebuild the important one (the automatic, invisible contribution) yourself with a recurring transfer, and the forgiving deadline lets you fund the rest with hindsight, after you know your year. Lumpy income isn't a barrier; it's a rhythm you learn to save inside of. Your accounts are bigger, your control is total, and the only thing nobody will do for you is press start. Press it — open the account, automate the contribution — and everything a salaried worker's 401(k) does, yours does too. That's enough, and it's well within what you can do, beginning now.

SEP-IRA or Solo 401(k) — which should I actually pick?

For most self-employed people earning a freelancer's or moderate income, the Solo 401(k), because it shelters dramatically more of your money at the same income. The reason is the 'two hats': a SEP only lets your business contribute as the employer (an effective 20% of your net earnings for a sole proprietor), while a Solo 401(k) adds, on top of that same employer piece, a flat employee deferral of up to $24,500 in 2026. On DeShawn Carter's $85,000 of net profit, that's $15,799 in a SEP versus $40,299 in a Solo 401(k) — a $24,500 difference, exactly the employee deferral. The Solo 401(k) also offers a Roth option, catch-up contributions after 50, and a clean path to the backdoor Roth that a SEP can block. The SEP's one real advantage is simplicity: it's slightly easier to open, has zero annual paperwork ever, and has no December 31 deadline to remember. So pick the SEP if you value absolute simplicity above all and are certain you'll never want to save more than the employer piece; pick the Solo 401(k) — most people's better choice — if you want the bigger ceiling, the Roth option, and room to grow. The far bigger point: open one of them. Both beat having no account at all, which is the only genuinely wrong answer.

Why is my contribution limit 20% and not the 25% I keep reading about?

Because you're a sole proprietor, not a W-2 employee, and the 25% figure is written for employees. A sole proprietor's contribution is based on income that is itself reduced by the contribution — it's circular — and when you solve that with algebra, the 25% rate collapses to exactly 20% (the rule is: plan rate divided by one-plus-the-plan-rate, so 25% ÷ 1.25 = 20%). And that 20% applies not to your raw profit but to your 'net earnings,' which is your profit minus the deductible half of your self-employment tax. Walked on DeShawn's $85,000 net profit: multiply by 92.35% to get $78,497.50; apply the 15.3% self-employment-tax rate for $12,010 of SE tax; take half of that, $6,005, as the deduction; subtract it from the $85,000 to get $78,995 of net earnings; multiply by 20% to get a maximum of $15,799. The 25% headline would have falsely suggested over $21,000, and contributing that much would be an excess contribution that draws a penalty. One important exception: if your business is an S-corporation that pays you a W-2 salary, you really do use a clean 25% of your W-2 wages (no 92.35% step), because an S-corp owner is technically an employee. For a sole proprietor on a Schedule C, though, your number is 20% of net earnings — let tax software or a CPA run the six lines so you get it exactly right.

My income is really irregular — can I even contribute to one of these?

Yes, and the accounts are actually built for irregular income better than a salaried person's 401(k) is. There's no minimum and no obligation: in a lean year you can contribute nothing to a SEP and owe no explanation; in a strong year you can fund it up to your maximum. The deadline helps enormously, too — a SEP can be opened and funded as late as your tax-filing deadline including extensions, so you can wait until the year is completely over, know your exact profit, and then contribute with full hindsight using money you actually have. The practical technique for lumpy income is to set a modest automatic transfer at a level you can sustain even in a dry stretch, add one-off extra contributions in the months a big invoice lands, and then 'true up' at the end of the year once you know your real maximum. Jordan Lee, a Nashville gig worker averaging about $41,000, is exactly the person who assumes these accounts are 'for other people' — they're not; they accept a $50 contribution as readily as a $20,000 one. One honest caveat for Jordan specifically: with an $8,000 credit-card balance at nearly 25% interest, paying that down comes before retirement investing, because it's a guaranteed return no investment beats (the full order of operations is Lesson 11's priority waterfall). But the account itself is wide open to anyone without an employer, lumpy income and all.

What's the deadline — I'm doing my taxes now and haven't set anything up?

It depends on which account and which piece, and the distinction is exactly where people get tripped. A SEP-IRA is the forgiving one: you can both open it and fund it as late as your tax-filing deadline including extensions — so for a 2026 contribution you have until spring 2027, or until October 2027 if you file an extension. That means you genuinely can set up a SEP while doing your taxes and still contribute for the year that just ended. A Solo 401(k) is split: the employer profit-sharing piece follows that same generous extended deadline, but the employee deferral (the $24,500 piece that gives the Solo its advantage) normally has to be elected by December 31 of the contribution year — you can't usually decide in the spring that you deferred $24,500 of a year that's already over. There's one narrow escape: a 2022 law lets a sole proprietor with no employees make the FIRST year's employee deferral up to the unextended tax-filing deadline (around April), but only for the plan's first year and only without extensions. So if you're doing taxes now and starting from scratch: a SEP can capture last year fully; a brand-new Solo 401(k) may let you make a first-year deferral by April plus the employer piece by the extended deadline. Going forward, the clean habit is to open the Solo 401(k) and get a deferral election running during the year, by December 31.

It's just me — do I really need a '401(k)'? Isn't that for companies with employees?

A Solo 401(k) is specifically a 401(k) for a business with no employees other than you (and optionally a spouse), so 'just me' is exactly who it's for — the name 'one-participant 401(k)' says so directly. You are simultaneously the employer who sponsors the plan and the only employee who participates in it, which is the whole 'two hats' idea and the reason it can shelter more than a SEP. Setting one up does not require you to have, become, or hire employees; it's designed for the solo owner. The flip side worth knowing: it stays a simple 'solo' plan only while you have no eligible employees. If you later hire someone who becomes eligible, the plan converts into a full company 401(k) with testing and annual filings — at which point most small employers move to a SIMPLE IRA instead (the account built for a few employees). But as a one-person business, you get the full power of a 401(k) — the big combined limit, the Roth option, the catch-ups — with only a one-participant plan's light requirements (no annual form at all until your balance crosses $250,000). So yes: a sole proprietor with zero employees should seriously consider a Solo 401(k); it was built for precisely that situation.

Can my spouse be part of my Solo 401(k)?

Yes, and it's one of the most powerful moves available to a couple who run a business together. If your spouse is a legitimate employee of your business — doing real work for real compensation — they can participate in the same Solo 401(k) as a second participant without it losing its simple 'one-participant' status (the plan allows the owner and a spouse). That means your spouse gets their own full employee deferral of up to $24,500, their own employer profit-sharing contribution, and their own separate $72,000 annual-additions limit — so a married couple can roughly double the household's tax-sheltered space inside one plan. The one firm requirement is that the spouse must be a bona fide employee with actual compensation from the business; you can't simply add a spouse who doesn't really work in it, because the contributions have to be based on real earnings. For couples who genuinely operate a business together, though — and many self-employed households do — putting both spouses on the Solo 401(k) is a clean way to shelter far more than a single participant could, all while keeping the plan's paperwork at the light one-participant level.

What happens to these accounts if I hire an employee?

Both of the owner-only accounts change the day you take on an eligible employee, so it's worth knowing the fork before you reach it. A Solo 401(k) stops being a 'solo' plan — it becomes a regular company 401(k), with nondiscrimination testing, employer obligations, and full annual filings, which is a real jump in complexity. A SEP keeps working, but its same-percentage rule kicks in: you must contribute the same percentage of pay for every eligible employee (age 21, worked 3 of the last 5 years, earned at least $800 in 2026) that you give yourself, fully funded by you and immediately theirs — so giving yourself 20% means funding 20% for each of them, which can get expensive fast. Because of that, most small businesses that cross from solo into 'a few employees' move to a SIMPLE IRA, the account built for that size: it lets employees defer their own pay (up to $17,000 in 2026) and caps the employer's cost at a predictable 3% match or 2%-of-pay contribution, rather than the SEP's same-percentage exposure or a full 401(k)'s complexity. The progression across a self-employed life is clean: SEP or Solo 401(k) while you're alone, a SIMPLE IRA with a handful of employees, a full 401(k) with a larger payroll. Hiring doesn't end your ability to offer retirement saving — it just moves you to the next account in the sequence.

Can I do a Roth version, and can I have one of these AND a regular IRA?

On Roth: a Solo 401(k) almost always lets you designate your employee deferral as Roth — pay tax now, withdraw tax-free in retirement — which is often attractive for a younger self-employed saver who expects to be in a higher bracket later. (A 2022 law also technically allows Roth employer contributions and even a Roth SEP, but provider support for both is rare, so in practice 'Roth' means the Solo 401(k)'s employee deferral.) Roth money in a Solo 401(k) also has no required minimum distributions in your lifetime, a nice flexibility. On having both: yes — a SEP, Solo 401(k), or SIMPLE never disqualifies you from also funding a regular Traditional or Roth IRA, which has its own separate limit ($7,500 in 2026, plus a $1,100 catch-up at 50-plus). They're different buckets. One interaction to flag for higher earners: if you're doing a 'backdoor Roth' (Lesson 24's topic), a SEP-IRA balance counts as a pre-tax IRA that can make the maneuver mostly taxable, while a Solo 401(k) balance does not count at all — so a high earner who wants a clean backdoor Roth is better off with a Solo 401(k) than a SEP. The full Roth-versus-traditional logic and the backdoor mechanics live in the IRA lessons (Lesson 18 and Lesson 24); for this lesson, the headline is that the Solo 401(k) gives you the Roth door, and any of these accounts can sit alongside an IRA.

This is the L21 interactive, and it puts the lesson's central decision in your own hands — the SEP-versus-Solo choice, run on your numbers instead of a character's. Enter your net self-employment income (your business profit) and your age, and it computes, live and side by side, the maximum you could contribute to a SEP-IRA versus a Solo 401(k) for 2026 — walking the same worksheet from §2.2 (your profit, the 92.35% adjustment, your self-employment tax, the half-SE-tax deduction, your net earnings, and the 20% employer rate) and then adding the Solo 401(k)'s flat $24,500 employee deferral and any age-based catch-up on top. It shows you exactly where the two accounts differ and by how much, and it highlights the crossover: at low and moderate incomes the Solo 401(k) wins by the full employee deferral, and as your income climbs toward the point where the 20% employer piece alone fills the $72,000 annual-additions ceiling, the gap shrinks until the two accounts deliver the identical number. The defaults reproduce the lesson's canonical figures exactly — DeShawn's $85,000 of net profit yielding $15,799 in a SEP versus $40,299 in a Solo 401(k), and the high-income convergence at $72,000 — so you can see the worked example before you replace it with your own. Every figure recalculates from your inputs using the confirmed 2026 limits and the same formulas worked through this lesson. It runs entirely in your browser with React state only — nothing is stored, nothing is sent anywhere; close the tab and your numbers are gone.