Retirement Plans for Solo Attorney Practices: SEP IRA vs Solo 401(k)
Compare SEP IRA and Solo 401(k) for solo attorneys: contribution limits, costs, deadlines, and practical steps to choose and set up the right plan.
As a solo attorney, your retirement plan is one of the most powerful tax-saving tools you have. Two options dominate for practices without employees: the SEP IRA and the Solo 401(k). Both allow you to contribute pre-tax dollars, but they differ in contribution limits, flexibility, and administrative burden. This guide compares them directly so you can pick the right one for your practice.
Contribution Limits: How Much Can You Save?
For 2026, the IRS sets contribution limits for both plans. The SEP IRA allows contributions up to 25% of your net self-employment income (after deducting half of self-employment tax), capped at $70,000. The Solo 401(k) allows the same employer contribution (25% of net income, up to $70,000) plus an employee deferral of up to $23,500 (or $31,000 if you’re age 50 or older). That means a Solo 401(k) can let you save significantly more.
Example: If your net income is $150,000, the SEP IRA max contribution is $37,500 (25% of $150,000). With a Solo 401(k), you can add the $23,500 employee deferral, bringing your total to $61,000. That’s a $23,500 difference in tax-deferred savings.
Cost and Setup: What Does It Take?
SEP IRAs are simpler and cheaper to set up. Most brokerages (Fidelity, Vanguard, Schwab) offer SEP IRAs with no setup fee and no annual maintenance fee. You can open one in about 15 minutes online. The Solo 401(k) is slightly more complex: you need a plan document, and some providers charge setup fees (typically $0 to $500) and annual fees (often $0 to $200 per year). However, many discount brokers offer free Solo 401(k)s, though they may lack features like loans or Roth options.
Flexibility and Features: What Matters for You?
Consider these practical differences:
- Roth contributions: Solo 401(k)s allow Roth employee deferrals (after-tax, tax-free growth). SEP IRAs do not offer Roth options.
- Loans: Solo 401(k)s allow borrowing up to $50,000 or 50% of your balance, whichever is less. SEP IRAs do not allow loans.
- Catch-up contributions: If you’re 50+, Solo 401(k) allows an extra $7,500 in employee deferrals. SEP IRA has no catch-up.
- Deadlines: SEP IRAs can be set up and funded by your tax filing deadline (including extensions), typically April 15. Solo 401(k)s must be established by December 31 of the tax year, though contributions can be made by the filing deadline.
- Administrative burden: SEP IRAs require almost no paperwork. Solo 401(k)s require filing Form 5500-EZ annually once your balance exceeds $250,000.
Comparison Table: SEP IRA vs Solo 401(k)
| Feature | SEP IRA | Solo 401(k) |
|---|---|---|
| Contribution limit (2026) | 25% of net income, up to $70,000 | 25% employer + $23,500 employee deferral, up to $70,000 total |
| Catch-up (age 50+) | None | $7,500 extra employee deferral |
| Roth option | No | Yes (employee deferrals) |
| Loans | No | Yes (up to $50,000) |
| Setup cost | $0 at most brokers | $0 to $500 |
| Annual fee | $0 | $0 to $200 |
| Deadline to establish | Tax filing deadline (April 15) | December 31 of tax year |
| Form 5500-EZ | Not required | Required if balance > $250,000 |
| Administration | Minimal | Slightly more (plan document, annual filings) |
Which One Should You Choose?
Choose a SEP IRA if:
- You want the simplest, lowest-cost option.
- You don’t need to maximize contributions beyond 25% of income.
- You’re not interested in Roth contributions or loans.
- You often miss the December 31 deadline and need flexibility.
Choose a Solo 401(k) if:
- You want to save the maximum amount possible, especially if your income is high.
- You want Roth contribution options.
- You might want to borrow from your retirement savings.
- You’re comfortable with slightly more paperwork and annual filing requirements.
Practical Steps to Set Up Your Plan This Week
- Estimate your net income: Look at your 2025 tax return or your current profit-and-loss statement to estimate your net self-employment income for 2026.
- Decide on the plan type: Use the table above to match your needs. If you’re unsure, start with a SEP IRA; you can always add a Solo 401(k) later.
- Open the account: Go to a brokerage like Fidelity, Vanguard, or Schwab. For a SEP IRA, open a SEP-IRA account and complete a one-page adoption agreement. For a Solo 401(k), you’ll need to open a solo 401(k) account and complete a plan document (the brokerage provides it).
- Set up automatic contributions: Schedule monthly or quarterly transfers to your retirement account. This ensures you actually save.
- Mark your calendar: For SEP IRA, note the tax filing deadline. For Solo 401(k), ensure you establish it by December 31.
FAQ
Can I have both a SEP IRA and a Solo 401(k)? Yes, but the combined contributions cannot exceed the overall limit ($70,000 for 2026). In practice, most attorneys choose one to simplify.
What if I hire employees later? If you hire non-spouse employees, the Solo 401(k) becomes a regular 401(k) with additional compliance requirements. SEP IRAs also require contributions for eligible employees. Consider this when choosing.
Are there state-specific rules? Some states have their own retirement savings programs, but for solo practices, federal rules apply. Check with your CPA for state-specific tax treatment.
What’s the best brokerage for a Solo 401(k)? Fidelity, Vanguard, and Schwab offer low-cost options. E*TRADE and TD Ameritrade also have competitive plans. Compare fees and features before choosing.
The Bottom Line
For most solo attorneys, the Solo 401(k) offers superior savings potential and flexibility, especially if you want to maximize contributions or use Roth options. The SEP IRA is a simpler, lower-maintenance alternative that works well if you’re comfortable with lower limits. Assess your income, your savings goals, and your tolerance for paperwork, then act before the deadline. Setting up either plan is a straightforward process that can save you thousands in taxes each year.