Solo 401(k) vs SEP IRA: Best Retirement Plan for Freelancers in 2025

As a freelancer, planning for retirement can feel overwhelming, especially with so many options like Solo 401(k) and SEP IRA on the table.

In 2025, choosing the right plan isn’t just about saving for retirement—it’s about maximizing your tax benefits and maintaining flexibility.

This post will walk you through the key differences between these two retirement plans and help you decide which one fits your freelance lifestyle best.

💼 What is a Solo 401(k)?

A Solo 401(k), also called an Individual 401(k), is designed specifically for self-employed individuals or business owners with no full-time employees.

This plan allows you to contribute as both an employer and an employee, giving you higher potential contribution limits than most traditional IRAs.

In 2025, it's becoming an increasingly popular option for freelancers who want more control over their retirement savings.

📈 What is a SEP IRA?

A SEP IRA (Simplified Employee Pension Individual Retirement Account) is a retirement plan that allows self-employed individuals to contribute to traditional IRAs for themselves and their employees.

It’s known for its simplicity, low setup costs, and fewer administrative headaches compared to a 401(k).

However, it lacks the employee deferral feature that makes Solo 401(k) more versatile for high-income freelancers.

💰 Contribution Limits in 2025

In 2025, the IRS increased contribution limits for both Solo 401(k) and SEP IRAs.

With a Solo 401(k), you can contribute up to $23,000 as an employee, plus 25% of your net self-employment income as an employer, up to a total of $69,000.

If you’re 50 or older, you can add an additional $7,500 in catch-up contributions.

For SEP IRAs, you can contribute up to 25% of your net earnings from self-employment, with a maximum of $69,000, but no employee deferral is allowed.

🧾 Tax Advantages and Deductions

Both plans offer substantial tax benefits, but they work differently.

Contributions to both are tax-deductible, reducing your taxable income.

Solo 401(k)s also offer Roth options, allowing you to pay taxes now and grow your savings tax-free for retirement.

SEP IRAs do not offer a Roth feature, which could be a drawback for freelancers expecting to be in a higher tax bracket later in life.

🛠️ Ease of Setup and Maintenance

SEP IRAs are easier to set up and maintain, often requiring just a few forms and no annual IRS filings unless you have employees.

Solo 401(k)s are more complex and require Form 5500-EZ filings once your plan exceeds $250,000 in assets.

However, many online providers like Fidelity, Vanguard, and Charles Schwab offer simplified setup processes for both options.

🔄 Flexibility and Loan Options

This is where Solo 401(k) really shines.

Unlike SEP IRAs, Solo 401(k)s allow you to take a loan of up to $50,000 or 50% of your account balance—whichever is less.

This feature can be a lifesaver during financial downturns or when unexpected expenses pop up.

🤔 Which Plan is Better for You?

If you’re a freelancer with high income, no full-time employees, and want to maximize contributions while having access to loans and Roth options, the Solo 401(k) is likely your best bet.

If simplicity and minimal paperwork are your top priorities, and you’re not looking to contribute massive amounts, then a SEP IRA might be a better fit.

Remember, your choice should align with your income level, retirement goals, and how hands-on you want to be with your investments.

🔗 Recommended Resource

For a detailed breakdown of Solo 401(k) and SEP IRA pros and cons, visit the article below:

Choosing the right retirement plan in 2025 doesn’t have to be a guessing game.

Evaluate your current income, business structure, and how much administrative responsibility you’re comfortable with.

Either way, just taking the step to start saving for your future puts you ahead of the game.

Keywords: Solo 401(k), SEP IRA, Freelancer Retirement, 2025 Tax Benefits, Self-Employed Savings