Retirement Plan Deductions for Self-Employed 2026: Solo 401k, SEP IRA, and SIMPLE IRA Guide

Published: January 7, 2026 Tax Year: 2026

A Message from Slava

When I started Jupid, one of the first financial decisions I made was setting up a Solo 401k. Coming from the UK, where pension contributions are straightforward, I was amazed by how much more self-employed Americans can save in retirement accounts—if they know the rules.

Last year, I contributed $66,000 to my Solo 401k between employee deferrals and employer profit-sharing. At my tax bracket, that's roughly $23,000 in immediate tax savings—money that's now growing tax-deferred instead of going to the IRS.

Yet most self-employed people I meet either have no retirement plan at all or are using a basic Traditional IRA with its $7,000 limit. They're leaving tens of thousands of dollars in tax deductions on the table every year.

This guide will show you the full range of retirement plan options for self-employed individuals, help you choose the right one for your situation, and maximize your tax savings in 2026.

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Executive Summary: Retirement Plan Limits for 2026

New for 2026:

• Solo 401k elective deferral: $24,500 (up from $23,500)
• Enhanced catch-up (ages 60-63): $11,250 additional
• Mandatory Roth catch-up for high earners ($150K+)
• SEP IRA maximum: $72,000

Legal Basis: IRC Sections 401k, 402g, 408, 408A; IRS Publication 560

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Why Retirement Plans Are the Ultimate Tax Deduction

The Triple Benefit

Retirement plan contributions offer three major advantages:

1. Immediate Tax Deduction - Reduces taxable income dollar-for-dollar
2. Tax-Deferred Growth - Investments compound without annual taxation
3. Retirement Security - Build wealth for the future

The Math That Matters

Example: $50,000 annual contribution over 20 years

Without retirement plan:

• Taxable income: $200,000
• Taxes paid (32%): $64,000
• Net to invest: $136,000
• After 20 years (7% return, taxed annually): ~$400,000

With Solo 401k:

• Contribution: $50,000 (tax-deductible)
• Immediate tax savings: $16,000
• After 20 years (7% return, tax-deferred): ~$640,000
• Difference: ~$240,000 MORE in retirement

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Solo 401k: The Most Powerful Option

The Solo 401k (also called Individual 401k or Self-Employed 401k) is the most flexible and powerful retirement plan for self-employed individuals without full-time employees.

2026 Contribution Limits

*25% of W-2 wages (S Corp) or ~20% of net self-employment income (sole proprietor)

Legal Citation: IRC § 402g establishes elective deferral limits. SECURE 2.0 Act created enhanced catch-up for ages 60-63.

How Solo 401k Contributions Work

You wear two hats:

1. As Employee: Contribute up to $24,500 (plus catch-up if eligible)
2. As Employer: Contribute up to 25% of compensation

Sole Proprietor Calculation:

Net self-employment income: $150,000 Self-employment tax deduction: $10,597 Adjusted net income: $139,403 Employer contribution (20%): $27,880 Employee deferral: $24,500 Total contribution: $52,380 Tax savings at 32% bracket: $16,762

Solo 401k Advantages

• ✅ Highest contribution limits - Up to $72,000+ per year
• ✅ Loan provision - Borrow up to $50,000 or 50% of balance
• ✅ Roth option - Tax-free growth if desired
• ✅ Spouse participation - Working spouse can also contribute
• ✅ Flexible contributions - Can vary year to year

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SEP IRA: Simplicity Meets High Limits

The Simplified Employee Pension (SEP) IRA offers high contribution limits with minimal administrative requirements.

2026 Contribution Limits

For self-employed: Effective maximum is ~20% of net self-employment income (after self-employment tax adjustment)

Legal Citation: IRC § 408k establishes SEP IRA rules.

SEP IRA vs Solo 401k

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SIMPLE IRA: For Businesses With Employees

The Savings Incentive Match Plan for Employees (SIMPLE) IRA is designed for small businesses with up to 100 employees.

2026 Contribution Limits

Employer contribution options:

• Option 1: Dollar-for-dollar match up to 3% of compensation
• Option 2: 2% non-elective contribution for all eligible employees

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Traditional and Roth IRA: The Foundation

Even with other retirement plans, you may be able to contribute to Traditional or Roth IRAs.

2026 Contribution Limits

Backdoor Roth IRA Strategy

High earners who exceed Roth IRA income limits can use the "Backdoor Roth" strategy:

1. Contribute to Traditional IRA (non-deductible)
2. Convert to Roth IRA
3. Pay taxes only on gains (minimal if converted quickly)

Warning: Pro-rata rules apply if you have other Traditional IRA balances.

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Contribution Deadlines

Key dates for 2026 contributions:

• Solo 401k must be established by: December 31, 2026
• SEP IRA can be established until: April 15, 2027 (or October 15, 2027 with extension)
• IRA contributions due: April 15, 2027

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Strategies to Maximize Retirement Savings

Strategy 1: Stack Multiple Plans

You can contribute to multiple retirement plans:

• Solo 401k contribution: $50,000
• HSA contribution (family): $8,750
• Backdoor Roth IRA: $7,000
• Spouse's retirement account: $24,500+
• Total tax-advantaged savings: $90,250+

Strategy 2: Catch-Up at Ages 60-63

The SECURE 2.0 Act created enhanced catch-up contributions for ages 60-63:

• Standard under-50: $24,500 employee + $47,500 employer = $72,000
• Ages 50-59, 64+: $32,500 employee + $47,500 employer = $80,000
• Ages 60-63: $35,750 employee + $47,500 employer = $83,250

Tax savings difference (32% bracket):

• Standard vs. 60-63 catch-up: $3,600 more savings per year

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Common Mistakes to Avoid

Mistake #1: Missing the Establishment Deadline

Problem: Trying to set up Solo 401k in February for prior year

Consequence: Can only establish SEP IRA; miss out on $24,500+ in employee deferrals

Solution: Establish Solo 401k by December 31, contribute later

Mistake #2: Over-Contributing

Problem: Exceeding contribution limits

Consequence: 6% excise tax on excess contributions each year until corrected

Solution: Calculate limits carefully; work with administrator

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Setting Up Your Retirement Plan

Solo 401k Setup

Step 1: Choose a provider (Fidelity, Schwab, Vanguard offer free plans)

Step 2: Complete plan documents (Adoption agreement, Basic plan document)

Step 3: Set up account (Open custodial account, Set up contribution method)

Step 4: Contribute (Employee deferrals any time during year, Employer contributions by tax filing deadline)

Cost: Free at major brokerages

SEP IRA Setup

Step 1: Complete IRS Form 5305-SEP (Simple one-page form, Keep for your records)

Step 2: Open SEP IRA account (Any brokerage or bank, Designate as SEP IRA)

Step 3: Contribute (Any time up to tax filing deadline with extensions)

Cost: Free

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Final Thoughts

Retirement plans are the most powerful tax deduction available to self-employed individuals. A Solo 401k can shelter up to $72,000+ annually from taxes—that's potentially $20,000-25,000 in immediate tax savings at higher brackets.

The key takeaways:

• Solo 401k is usually best for self-employed with no employees and income over ~$75,000
• SEP IRA is simpler and can be established until your tax filing deadline
• Start early in the year to maximize employee deferrals
• Ages 60-63 get an extra $3,250 in catch-up contributions
• Stack multiple accounts - retirement plan + HSA + IRA for maximum tax-advantaged savings

Don't leave tens of thousands of dollars in tax deductions on the table. Set up a retirement plan, maximize your contributions, and watch your wealth compound tax-free.

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Disclaimer

This article provides general information about retirement plans and tax deductions and should not be considered tax or financial advice. Retirement plan rules are complex and individual circumstances vary significantly. Contribution limits and rules change annually. For advice specific to your situation, consult with a qualified tax professional or financial advisor.

Tax Year: 2026 Last Updated: January 7, 2026