SEP-IRA, Solo 401(k), or SIMPLE IRA: Choosing a Retirement Plan Before Year-End Locks You In
The retirement plan that is easiest to open is not always the one that creates the most room to save. SEP-IRAs, solo 401(k)s, and SIMPLE IRAs have different contribution limits, setup rules, and deadlines — and by year-end, some choices are already narrowing.
SEP-IRA: The Most Flexible on Timing
A SEP-IRA can generally be established and funded as late as the business's tax filing deadline, including extensions — there's no need to have it open by year-end. For 2026, the contribution limit is the lesser of 25% of compensation or $72,000. It's employer-only money (no employee salary deferrals), which makes it simple to administer but means the entire contribution is calculated as a percentage of compensation rather than a flat deferral amount.
Solo 401(k): More Room, But It Needs to Exist Sooner
A solo 401(k) often needs to be established by the end of the tax year it's meant to cover, although SECURE 2.0 created a first-year exception for a sole proprietor who owns the entire unincorporated business and is the only employee: that taxpayer can generally adopt a new 401(k) after year-end and make the first-year elective-deferral election by the unextended return due date. For 2026, the employee deferral limit is $24,500, plus a $8,000 catch-up for those 50 and older, or an enhanced $11,250 catch-up specifically for those turning 60 through 63 this year. On top of the deferral, an employer contribution can bring the total up to the overall $72,000 limit (higher for the 60-63 catch-up group), which generally allows meaningfully more total savings than a SEP-IRA at the same income level, particularly for a business with modest profit but room to defer salary.
SIMPLE IRA: Lower Limits, Lower Administrative Burden
For 2026, the standard SIMPLE IRA deferral limit is $17,000 (higher, at $18,100, for certain small employers electing an enhanced limit), with a $4,000 catch-up at 50 and older, or a $5,250 enhanced catch-up for those turning 60 through 63. A SIMPLE generally needs to be established before October 1 of the year it's meant to cover for an existing business, which makes this one already off the table for the current year if it wasn't set up earlier — but worth planning now for next year if it fits.
Why the Decision Belongs on the October Calendar
Because many solo 401(k) arrangements still need year-end attention, while a SIMPLE generally has an even earlier setup deadline, the choice between these plans belongs on the year-end calendar. The SECURE 2.0 sole-proprietor exception prevents December 31 from being a universal solo 401(k) deadline, so entity type and plan facts matter. A SEP-IRA remains available as a fallback well into next spring, but for anyone who could benefit from the higher solo 401(k) limits, the window to actually set one up for this year is closing.
This information is educational and describes general 2026 contribution limits and plan mechanics under current law. It does not recommend a specific plan for your business or calculate your maximum allowable contribution. If you're weighing which plan fits your situation before year-end, our tax planning team can help you compare the actual numbers.
Related service: Tax Advisory & Planning
Comments