Solo 401(k) vs. SEP IRA 2026: Year-End Retirement Plan Deadlines for Union City Self-Employed Owners

If you are self-employed, the last few weeks of the year are when retirement savings and tax planning meet. A Solo 401(k) or a SEP IRA can move tens of thousands of dollars of 2026 profit into a tax-deferred account, but the two plans have different limits and, more importantly, different deadlines. This self-employed retirement plan Union City guide compares the 2026 limits, explains which deadlines fall on December 31, 2026 and which run into 2027, and walks through sample numbers for a sole proprietor.

It is written for freelancers, consultants, contractors, real estate agents, rideshare and delivery drivers, and small business owners in Union City, Fremont, Newark, Hayward, San Leandro, Castro Valley and the wider Bay Area who have self-employment income or own an S corporation, and who are deciding before year-end how much to save.

2026 Retirement Plan Limits at a Glance

The IRS announced the 2026 figures in IR-2025-111 and lists them in its COLA table for retirement plans:

• 401(k) elective deferral limit: $24,500 (up from $23,500 in 2025).
• Catch-up for age 50 and over: $8,000, so up to $32,500 in deferrals.
• Higher catch-up for ages 60, 61, 62 and 63: $11,250 instead of $8,000.
• Total defined contribution limit (employee plus employer, excluding catch-ups): $72,000.
• SEP maximum contribution: $72,000; maximum compensation counted: $360,000; SEP minimum compensation for an eligible employee: $800.
• IRA contribution limit: $7,500, plus a $1,100 catch-up at 50 and over.

How a Solo 401(k) Works

According to the IRS page on one-participant 401(k) plans, a Solo 401(k) is a traditional 401(k) covering a business owner with no employees, or the owner and his or her spouse. The owner “wears two hats” and can contribute as both employee and employer:

• Elective deferrals of up to 100 percent of compensation (earned income for a self-employed person), up to $24,500 for 2026 plus any catch-up. Deferrals can be pre-tax or, if the plan allows, Roth.
• Employer nonelective contributions of up to 25 percent of compensation as defined by the plan. For a sole proprietor or single-member LLC, the special self-employed calculation turns that into 20 percent of net earnings.

Deferral limits are per person, not per plan. If you also have a W-2 job with a 401(k) at a Bay Area employer, your deferrals in both plans share one $24,500 limit, although the employer contribution from your own business is separate. There is no nondiscrimination testing while you have no employees, and the plan generally must file Form 5500-EZ once plan assets reach $250,000 or more at the end of the year.

How a SEP IRA Works

A Simplified Employee Pension (SEP) lets any employer, including a self-employed individual, contribute to traditional IRAs (SEP IRAs). It is easy to set up, often with IRS Form 5305-SEP and an account at a financial institution. The trade-off is that a SEP is employer money only. The IRS SEP contribution limits page says contributions cannot exceed the lesser of 25 percent of compensation or $72,000 for 2026, and that elective deferrals and catch-up contributions are not permitted in SEP plans.

For your own account, compensation is your net earnings from self-employment minus the deduction for half of your self-employment tax and minus the contribution itself. IRS Publication 560 handles that circular math with a Rate Table for Self-Employed: a 25 percent plan rate becomes a 0.200000 rate, which is why you will often hear “20 percent of net earnings.” Pub 560 also notes that SEP plans may now allow contributions to a Roth SEP IRA under the SECURE 2.0 Act.

Solo 401(k) vs. SEP IRA: Sample 2026 Numbers

The difference is the $24,500 employee deferral. At moderate income, the deferral lets a Solo 401(k) shelter much more. The examples below are Accountico’s own arithmetic using the Publication 560 method, 2026 limits, a 15.3 percent self-employment tax on 92.35 percent of net profit, and a sole proprietor with no employees. They are rounded and are not IRS examples.

Example 1: $60,000 Schedule C net profit

• Self-employment tax is about $8,478, so the deduction for half is about $4,239, leaving about $55,761 of net earnings.
• SEP IRA: 20 percent of $55,761 is about $11,152.
• Solo 401(k): $24,500 deferral plus the same $11,152 employer contribution is about $35,652, or about $43,652 if you are 50 or older.

Example 2: $150,000 Schedule C net profit

• Self-employment tax is about $21,194, so the deduction for half is about $10,597, leaving about $139,403 of net earnings.
• SEP IRA: 20 percent is about $27,881.
• Solo 401(k): $24,500 plus $27,881 is about $52,381, about $60,381 at age 50 or over, or about $63,631 at ages 60 through 63.

Working the same math backward, a Solo 401(k) reaches the $72,000 total (before catch-ups) at roughly $237,500 of net earnings after the self-employment tax deduction, while a SEP needs about $360,000 to reach the same $72,000. Above those levels the two plans converge, and a SEP’s simplicity may win. Contributions for yourself are deducted on Schedule 1 (Form 1040), line 16, and reduce income tax; they do not reduce self-employment tax.

Year-End Deadlines: What Must Happen by December 31, 2026

This is where the plans really differ, and where many owners lose a year of savings.

• Solo 401(k) set-up: Publication 560 says that to deduct contributions for a tax year, a qualified plan must be set up (adopted) by the last day of that year. Opening a Solo 401(k) by December 31, 2026 keeps every option open for 2026.
• The sole proprietor exception: Pub 560 also says that, for 2023 and later years, a sole proprietor with no employees can adopt a new 401(k) after the end of the tax year if it is adopted by the tax filing deadline without extensions. Elective deferrals must be paid to the plan by that date (April 15, 2027 for 2026) to count for the first plan year. Extensions do not stretch this deadline.
• Deferral elections in an existing plan: if you already have a Solo 401(k), document how much you plan to defer from 2026 earnings before year-end, even if you deposit the money later. Your plan provider’s rules control the paperwork.
• S corporation owners: your compensation for plan purposes is your W-2 wages from the S corporation, not distributions. Deferrals are withheld from payroll, so they have to run through your 2026 paychecks, which means planning a December payroll now. Our S corp election guide covers reasonable salary, and our payroll services team can set up the deferral.
• Catch-ups for higher earners: the IRS catch-up contributions page says that beginning in 2026, plans with Roth features must make catch-up contributions Roth if the participant’s prior-year wages from the plan sponsor exceeded $150,000. This mainly affects S corporation owners who pay themselves a W-2 salary.

Deadlines That Run Into 2027

• SEP IRA: the IRS SEP FAQs say you can set up a SEP for a year as late as the due date (including extensions) of your business income tax return, and must deposit contributions by that due date. For a calendar-year sole proprietor that is April 15, 2027, or October 15, 2027 with an extension. If you did not request an extension and miss the filing due date, the IRS says the contributions cannot be deducted on that year’s return.
• Solo 401(k) employer contributions: for a plan established by the end of 2026, Pub 560 says contributions made by the due date of the 2026 return, plus extensions, can be applied to 2026 if the plan treats them as received on the last day of the year and you designate them in writing or deduct them on the 2026 return.
• Traditional or Roth IRA: due by the return due date, not including extensions, and separate from SEP or 401(k) contributions.

Because a SEP can be opened after you know your final 2026 profit, it is a useful fallback for owners who miss the December 31 window. Lower 2026 income can also reduce what you owe on January 15, 2027; see our Q4 estimated tax guide before you make that payment.

Which Plan Fits Bay Area Owners?

• Solo 401(k) usually fits if you have no employees, net earnings under roughly $240,000 and want to save as much as possible, if you are 50 or older and want catch-ups, or if you want Roth deferrals or a loan feature (if the plan offers one).
• SEP IRA usually fits if you want minimal paperwork, missed the December 31 window, have income high enough that the 20 percent alone reaches your goal, or contribute very different amounts each year.
• Either way, big equipment purchases change your profit and therefore your contribution. If you are also weighing year-end purchases, read our Section 179 guide so the deduction and the retirement contribution are planned together.

California Notes: Employees and CalSavers

The plan choice changes once you hire. The IRS says a Solo 401(k) loses its no-testing advantage when you have eligible employees, and a SEP requires the same contribution percentage for every eligible employee (generally anyone 21 or older who worked for you in at least 3 of the last 5 years and earned at least $800 in 2026, unless your plan uses looser rules). In California, the CalSavers Retirement Savings Board says that effective January 1, 2026, all California employers with one or more employees must provide access to a qualified retirement program or certify a valid exemption with CalSavers. If you add your first employee in Union City or Fremont, choose a plan that works for both of you, or register for CalSavers.

Self-Employed Retirement Plan Union City Checklist

1. Close your books through November and project 2026 net profit or S corporation wages.
2. Estimate net earnings after the deduction for half of self-employment tax.
3. Compare the Solo 401(k) and SEP amounts using the 2026 limits ($24,500 deferral, $8,000 or $11,250 catch-up, $72,000 total).
4. Open a Solo 401(k) by December 31, 2026 if it is the better fit, and document your deferral election.
5. S corporation owners: run a December payroll that includes your 401(k) deferral.
6. Decide on pre-tax or Roth for deferrals, and check the $150,000 Roth catch-up rule if you have W-2 wages.
7. Calendar the 2027 funding deadlines: April 15, 2027, or October 15, 2027 with an extension, for SEP and employer contributions.
8. Plan for Form 5500-EZ if your Solo 401(k) assets reach $250,000.

Self-Employed Retirement Plan Union City FAQs

Do I have to open a Solo 401(k) by December 31, 2026?

It is the safest deadline. IRS Publication 560 says a qualified plan generally must be adopted by the last day of the year to deduct contributions for that year. There is an exception for a sole proprietor with no employees: a new 401(k) can be adopted after year-end, by the tax filing deadline without extensions, and elective deferrals paid by that date are treated as made in the first plan year. Owners who want the most flexibility, and S corporation owners who defer through payroll, should set the plan up before December 31.

What is the deadline to open and fund a SEP IRA for 2026?

The IRS says you can set up a SEP for a year as late as the due date of your business income tax return, including extensions, and you must deposit contributions by that same due date. For a calendar-year sole proprietor, that is April 15, 2027, or October 15, 2027 if you file an extension.

How much can I contribute to a Solo 401(k) in 2026?

For 2026 the elective deferral limit is $24,500, plus an $8,000 catch-up if you are 50 or older, or $11,250 instead if you are 60 through 63. On top of that, the business can make an employer contribution of up to 25 percent of compensation, which works out to 20 percent of net earnings for a sole proprietor. Total contributions, not counting catch-ups, cannot exceed $72,000.

How much can I contribute to a SEP IRA in 2026?

Employer contributions to a SEP IRA cannot exceed the lesser of 25 percent of compensation or $72,000 for 2026, and only the first $360,000 of compensation counts. For a self-employed owner, the effective rate is 20 percent of net earnings after the deduction for half of self-employment tax. SEPs do not allow elective deferrals or catch-up contributions.

Can my spouse be in my Solo 401(k)?

Yes. The IRS describes a one-participant 401(k) as a plan covering a business owner with no employees, or the owner and his or her spouse. If your spouse earns compensation from the business, both of you can contribute, subject to each person’s own limits.

What happens if I hire employees?

A Solo 401(k) loses its no-testing advantage once you have eligible employees, and they must be included in the plan. With a SEP, you must contribute the same percentage for every eligible employee as you do for yourself. California employers with one or more employees must also offer a qualified retirement plan or register for CalSavers under the state mandate that took effect for all eligible employers on January 1, 2026.

Choose Your Self-Employed Retirement Plan Union City Strategy With Accountico

The right plan depends on your profit, entity type, age, employees and timing, and the December 31 deadline arrives quickly. Accountico helps freelancers, consultants and small business owners in Union City, Fremont, Hayward, Newark, San Leandro, Castro Valley and across the Bay Area close their books, project 2026 profit, calculate contributions, and coordinate payroll and tax filing. Learn more about our tax strategy and planning, tax preparation and bookkeeping services.

Book a free 30-minute consultation or contact our team before December 31, 2026.

Accountico Inc
33476 Alvarado Niles Rd, Ste A007, Union City, CA 94587
(510) 400-9341

Disclaimer: This article is general information for self-employed individuals and business owners and is not tax, legal, investment or accounting advice. Contribution limits, deadlines and IRS and California guidance change, and individual situations differ. Confirm requirements with the IRS, the California Franchise Tax Board, your plan provider, or a qualified tax professional before acting.