For most self-employed business owners in 2026, the right retirement plan is a Solo 401(k) — and the entity structure that precedes that decision matters more than the plan itself. The SEP IRA works in a narrow set of cases. The SIMPLE IRA is almost never the right answer. What actually matters isn't a side-by-side limit table; it's how much net cash lands in your pocket after entity taxes, payroll taxes, and QBI interactions — and what that leaves available for retirement contributions.

"You have to take into account self-employment tax, payroll taxes, distributions, and QBI deductions. What really matters is the net cash in pocket for a given income amount, how much that allows for contribution to the retirement plan, and how that retirement plan creates a delta in the cash in pocket and balance in the retirement plan."

— Neal McSpadden, Founder, Tax Sherpa

Key Takeaways

• The standard comparison table at "$100k income" is structurally misleading — it ignores entity structure, payroll taxes, and QBI, which change every number.
• At $75k net SE income, the Solo 401(k) allows $38,440 versus $13,940 for a SEP IRA. The $24,500 gap is the employee deferral the SEP doesn't have — and it's constant at every income level.
• At $150k total S-Corp income with a $60k W-2, the Solo 401(k) allows $39,500 versus $15,000 for a SEP. Same $24,500 gap, same reason.
• The SIMPLE IRA caps total contributions at $19,250 at $75k income and carries a 25% early withdrawal penalty within the first two years.
• Retirement planning is the last step in the tax stack. Entity structure and QBI optimization come first; the retirement plan is the capstone.
• The answer to which plan wins almost always points to a 401(k) variant — Solo for owner-only businesses, safe harbor or traditional for businesses with employees.

Stop Comparing at $100k

Every SEP IRA vs. Solo 401(k) article runs the same table. Pick a round number — $100k income, sometimes $200k — show contribution limits side-by-side, conclude the Solo 401(k) wins. That framework is wrong before it starts.

Four variables the standard table ignores: entity structure (Schedule C vs. S-Corp produces entirely different contribution bases), SE and payroll taxes (reduce net income before the retirement math starts), QBI interactions (contributions reduce the §199A deduction), and distributions (S-Corp distributions don't count as compensation). An owner paying $60k W-2 on $150k total income has entirely different contribution capacity than one paying $150k W-2 on $300k total.

The honest comparison: for your specific income, entity, and payroll structure, what is net cash in pocket — and how much of that goes into a retirement account?

The 2026 Numbers, Done Correctly

2026 limits, correct formulas: SEP IRA for Schedule C filers uses approximately 20% of net SE income (not 25% — that rate applies only to W-2 wages in an S-Corp). Solo 401(k) shows employee deferral plus employer portion. SIMPLE IRA shows $17,000 employee deferral plus 3% match.