IRC §401(k), IRC §408(k), IRC §402(g)

Solo 401(k) / SEP-IRA Optimization

Self-employed retirement plans like SEP-IRAs and Solo 401(k)s allow much higher contribution limits than traditional IRAs. You can defer significant income while building retirement savings, reducing current taxes substantially.

Who this may apply to

Self-employed or business owner
Have earned income from the business
Want to reduce current taxable income
Interested in tax-deferred retirement savings

Strategy connections

Enables

Backdoor Roth / Mega Backdoor Roth: An eligible plan may accept a rollover of pre-tax IRA assets, which can reduce future pro-rata conversion exposure.

Works well with

S-Corporation Election: S corporation contributions are based on W-2 compensation, not distributions.
Cash Balance Plan: A defined contribution plan may be paired with a properly designed defined benefit plan.
Health Savings Account (HSA): Both can provide tax-advantaged long-term savings when independently eligible.

What could block this

No eligible earned compensation or self-employment income
Employees or controlled-group rules require a broader employer plan
Contribution or coverage limits have already been reached

Important considerations

Maintaining a SEP and another qualified plan can be restricted by the SEP document and all plans share applicable contribution limits. Review the plan documents instead of assuming contributions can be stacked.
A one-participant 401(k) is only available while the business has no eligible common-law employees other than the owner and spouse. Employee eligibility depends on the plan and current service rules.
Over-contribution to retirement accounts results in a 6% excise tax — track your contributions carefully if you have multiple income sources
Solo 401(k) requires filing Form 5500-EZ when plan assets exceed $250,000
If you have existing pre-tax IRA balances (Traditional, SEP, SIMPLE), rolling them into your Solo 401(k) “clears the deck” and makes backdoor Roth conversions viable in the same or following year — this is a two-step sequence, not a single-filing move. Discuss sequencing with your CPA before executing either step.

Professional support

Financial Advisor + CPA

Will help choose between SEP-IRA vs Solo 401(k), calculate maximum contributions, and coordinate with your overall retirement strategy.

Timing

Plan adoption, employee-deferral elections, and deposits have different deadlines. A sole proprietor with no employees may adopt a first-year Solo 401(k) by the unextended return deadline; other cases may require action by year-end. A SEP can generally be established by the employer return deadline, including extensions.

Official sources

Reviewed 2026-07-24