Can You Have Both a SEP IRA and a Solo 401(k)?

Yes, you can have both a SEP IRA and a Solo 401(k) in the same year, and the IRS confirms a SEP can coexist with another qualified plan.¹ The obstacle is almost never legal. It’s the SEP document itself: most owners open a SEP using the IRS model form, which bars maintaining any other qualified plan alongside it. Fix that, and the two accounts work together under one shared contribution ceiling of $72,000 for 2026 (or $80,000 with age-50 catch-ups).

The Form 5305-SEP Problem

Form 5305-SEP is the free model agreement most business owners use to open a SEP, and it contains a restriction printed on the form: you cannot use it if you maintain any other qualified retirement plan.² A plan counts as maintained even if you contributed zero to it that year. Open a Solo 401(k) while your SEP sits on Form 5305-SEP, and you’ve violated the SEP’s own terms.

The fix is to use a non-model SEP: a prototype document offered by a financial institution, or an individually designed SEP.³ These documents don’t carry the exclusivity clause. If your current SEP is on Form 5305-SEP, replace it with a prototype before you open the Solo 401(k). Skipping this step can disqualify the SEP entirely.

How the Shared Contribution Limit Works

Both plans are defined contribution plans, so they share a single annual ceiling under Internal Revenue Code Section 415(c). For 2026 that ceiling is the lesser of 100% of your compensation or $72,000.⁴ Every dollar contributed to either plan under the same business counts against that same $72,000.⁵

What differs is how each plan lets you fill the bucket. A SEP IRA accepts only employer contributions, capped at 25% of your net adjusted self-employment income.³ A Solo 401(k) accepts two flavors: employee deferrals up to $24,500 for 2026, plus employer contributions of up to 25% of compensation, all still subject to the combined $72,000 cap.⁴

The employee-deferral piece is what makes the combination worth setting up. For self-employed owners, the 25% employer contribution is actually computed at an effective 20% of net earnings after the self-employment tax adjustment.⁶

The Cost of Going Over

Contributions above the combined limit trigger a 6% excise tax on the excess for every year it stays in the account.⁸ The custodians won’t cross-check each other, so tracking the combined total is on you.

Why Run Both Plans

Two plans mean more paperwork, so the combination should earn its keep. A few concrete reasons owners keep both:

Loans. A Solo 401(k) can offer participant loans up to the lesser of $50,000 or 50% of the vested balance. SEP IRAs can’t; a loan from an IRA-based plan is a prohibited transaction that triggers immediate taxes and penalties.⁹
Roth contributions. A Solo 401(k) can accept employee deferrals on a Roth basis. SECURE 2.0 also allows Roth employer contributions to SEP IRAs, though custodian adoption has been slow.¹⁰
Income-year flexibility. In a strong year you can maximize both plans. In a lean year, you can skip the SEP entirely and still defer through the Solo 401(k)’s employee bucket, which doesn’t scale with business profit.
Transition planning. Some owners start with a SEP for its simplicity, then add a Solo 401(k) later for the deferral and Roth features without rolling over the existing balance.

If your income is high enough that the 25% employer contribution alone hits the $72,000 ceiling, or you don’t need loans or Roth treatment, a standalone SEP is simpler. The dual-plan math generally favors owners earning roughly $40,000 to $350,000.

Adding a Spouse

Hiring your spouse doubles household capacity without disqualifying the Solo 401(k). As long as your spouse is the only other person covered, the plan stays a one-participant plan. Your spouse gets a separate $72,000 ceiling, split between employee deferrals up to $24,500 and employer contributions based on their wages. Under-50 couples could shelter up to $144,000 per year across two Solo 401(k) accounts. The spouse must receive actual W-2 wages or documented earned income from the business.

Deadlines to Open and Fund Each Plan

The two plans have different setup deadlines, and confusing them can cost a year of contributions.

A SEP IRA can be established and funded as late as your tax filing deadline, including extensions.³ With an extension, that typically means October 15 to both open the account and contribute for the prior year.

A Solo 401(k) historically had to exist by December 31. SECURE 2.0 relaxed this for sole proprietors and single-member LLCs, who can now adopt a Solo 401(k) by the tax filing deadline (without extensions, typically April 15) and still make both employee deferrals and employer contributions for the prior year. Partnerships, S-corps, and C-corps still need the plan in place by December 31.¹¹ Employer contributions to either plan can be made up to the tax filing deadline with extensions; what varies is when the plan itself must be in place.

What Changes if You Hire Employees or Own Another Business

A Solo 401(k) is limited to one-participant plans, meaning the owner and optionally a spouse. Once a common-law employee meets the plan’s eligibility rules, the plan loses solo status even if that employee never enrolls, and you’ll need to convert to a standard 401(k) with nondiscrimination testing and broader Form 5500 filing. SECURE 2.0 also requires that employees who work at least 500 hours per year for two consecutive years be offered the chance to make elective deferrals starting in 2025. Track part-time hours; this is where one-person businesses often lose their solo plan status.

A SEP handles employees more gracefully. You can continue contributing for yourself while covering employees, but every eligible employee must receive the same contribution percentage you give yourself.³

If you own another business, don’t assume you get a second $72,000 limit. Under Internal Revenue Code Section 414(b) and (c), businesses with 80% or more common ownership are treated as a single employer, and all their defined contribution plans share one ceiling.¹² Employees across every entity in the group must also be considered for eligibility, so setting up a Solo 401(k) in one business while excluding employees in a related one can disqualify the plan.

Filing the Solo 401(k)’s Annual Return

A Solo 401(k) triggers an annual filing once total plan assets exceed $250,000 at year-end. The form is the 5500-EZ, due the last day of the seventh month after the plan year ends (July 31 for calendar-year plans).¹³ Below $250,000 in assets, no filing is required unless it’s the plan’s final year.

You can file the 5500-EZ electronically through EFAST2 or on paper. Electronic filing is mandatory if you file 10 or more returns of any type with the IRS during the calendar year, which includes W-2s, 1099s, and income tax returns. Late filing penalties run $250 per day, capped at $150,000 per plan year.¹⁴ The IRS offers a penalty relief program at $500 per late return, capped at $1,500 per plan, but only if the IRS hasn’t already sent a penalty notice for that year.¹⁵

SEP IRAs generally have no annual filing requirement for the owner. The financial institution holding the SEP-IRAs reports on its end. That lighter administrative load is one of the SEP’s main selling points, particularly for owners who don’t want another deadline on the calendar.

1
Internal Revenue Service. Retirement Plans FAQs Regarding SEPs
2
Internal Revenue Service. Form 5305-SEP
3
Internal Revenue Service. Simplified Employee Pension Plan (SEP)
4
Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living
5
Office of the Law Revision Counsel. 26 USC 415 – Limitations on Benefits and Contribution Under Qualified Plans
6
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
8
Office of the Law Revision Counsel. 26 USC 4973 – Tax on Excess Contributions to Certain Tax-Favored Accounts and Annuities
9
Internal Revenue Service. Retirement Topics – Loans
10
Internal Revenue Service. SECURE 2.0 Act Changes Affect How Businesses Complete Forms W-2
11
Internal Revenue Service. Publication 560 – Retirement Plans for Small Business
12
Office of the Law Revision Counsel. 26 USC 414 – Definitions and Special Rules
13
Internal Revenue Service. About Form 5500-EZ
14
Internal Revenue Service. 2025 Instructions for Form 5500-EZ
15
Internal Revenue Service. Penalty Relief Program for Form 5500-EZ Late Filers