Self-employed retirement planning with a W2 job
Compare Solo 401(k) and SEP IRA limits for your business
A side business can create retirement contribution capacity even when you already participate in a workplace 401(k). The comparison depends on profit, the employee deferrals used at other jobs, and the employer contribution supported by the business.
This calculator compares alternative plans for one owner-only sole proprietorship. It assumes no employees, no other self-employment income or losses, and unrelated W2 employers with standard 401(k) plans. It does not cover S corporation wages, partnerships, controlled groups, 403(b) aggregation, or multiple plans maintained by the same business.
How to use this tool
Start with business profit
Use Schedule C profit after operating expenses. Do not subtract your own retirement contribution first.
Coordinate the W2 job
Enter your Social Security wages and the employee deferrals made or planned elsewhere for the complete year.
Check age and plan provisions
Use your year-end age and confirm that the plan permits the contribution types shown.
Review capacity and practical costs
Compare the contribution breakdown with provider fees, administration, cash available, and your desired tax treatment.
2026 limits used here
The regular employee deferral limit is $24,500. Catch-up capacity is $8,000 from age 50, with $11,250 instead for ages 60 through 63. The business annual-additions limit is $72,000 before catch-up, and the compensation cap is $360,000. Plan provisions and earned income can impose a lower limit.
Example: $60,000 side-business profit
Assume age 40, $100,000 of W2 Social Security wages, and $15,000 of employee deferrals at the W2 job. Regular SE tax on the business is about $8,477.73, leaving about $55,761.14 after the deductible-half adjustment.
The remaining regular deferral is $9,500. The employer contribution ceiling is $11,152.22, so Solo 401(k) capacity is $20,652.22 versus $11,152.22 for the SEP. The $9,500 difference is room to contribute, not an income-tax refund.
Example: why low profit needs another limit
At age 40 with $30,000 of profit, no W2 wages, and no other deferrals, adjusted profit is about $27,880.57. A $24,500 employee deferral leaves a Solo 401(k) employer ceiling of $1,690.28 under the earned-income worksheet.
Solo 401(k) capacity is $26,190.28, while SEP capacity is $5,576.11. Simply adding the SEP amount to the full employee deferral would overstate the Solo 401(k) limit.
Example: employee deferrals already exhausted
At age 40, with $100,000 in business profit, $184,500 of W2 Social Security wages, and $24,500 deferred at an unrelated job, both plans allow $19,732.18 under the modeled assumptions. The W2 wages have used the Social Security wage base, so regular SE tax here consists of Medicare tax.
Age-based catch-up room could change this comparison when eligible. Do not reuse employee deferrals already allocated to another job.
One business, two alternatives
The displayed plan totals are alternatives, not separate allowances that can be stacked for the same business. Contributions through related employers or another plan maintained by this business require a broader review.
- The employee limit follows the person across covered plans.
- Employer matching at an unrelated 401(k) job is not an employee deferral.
- Your own Social Security wages affect the SE-tax adjustment; a spouse’s wages do not.
Contribution capacity is only one part of the choice
Confirm adoption and election deadlines, provider rules, Roth availability, catch-up treatment, fees, and any annual reporting obligations. A Solo 401(k) may involve more administration; a SEP may require contributions for eligible employees if your business later hires.
Results show contribution capacity. They do not estimate your deduction, tax savings, investment growth, creditor protection, or suitability. A Roth contribution can use contribution room without providing a current deduction.
Planning estimate for an owner-only Schedule C business using standard Schedule SE rules. Confirm eligibility, deadlines, employee coverage, related-employer rules, and contribution allocations with the plan administrator or a qualified tax professional before funding.
Sources and further reading
- IRS: 2026 retirement plan limits — Annual additions, employee deferrals, catch-up, and compensation caps.
- IRS: Publication 560 — Chapter 5 self-employed contribution worksheet; the model substitutes the announced 2026 dollar limits.
- IRS: One-participant 401(k) plans — Owner and employee contributions and coordination with another job.
- IRS: SEP plan questions — Plan setup, participation, and contributions.
- IRS: Schedule SE instructions — Standard self-employment tax calculation and the low-earnings threshold.
- SSA: 2026 contribution and benefit base — The $184,500 Social Security wage base and payroll tax rates.
Frequently asked questions
Can I have a W2 401(k) and a Solo 401(k)?
Potentially, when you have an eligible separate business and the plan requirements are met. The employee deferral limit is shared. This calculator assumes the W2 employers are unrelated to the sole proprietorship and use standard 401(k) plans.
Why does a sole proprietor use 20% rather than 25%?
The employer contribution itself reduces retirement-plan earned income. The IRS reduced-rate worksheet converts a 25% plan rate to 20% of profit after the deductible SE-tax adjustment. Additional limits still apply.
Does the SEP receive an age-based catch-up contribution?
The SEP employer contribution shown here has no age-based catch-up. The Solo 401(k) can include catch-up only when the participant and plan qualify, and only within remaining earned income and shared catch-up room.
What if my business has a loss or very little profit?
A business loss produces no modeled contribution capacity. With small positive profit, compensation can limit employee and employer contributions before the headline dollar caps are reached.
Are these amounts automatically deductible?
No. Tax treatment depends on contribution type, plan terms, timing, and your return. This tool estimates capacity and does not determine deductible versus Roth treatment or correct an existing excess contribution.