Solo 401(k) vs. SEP IRA vs. Roth IRA: retirement accounts for gig workers

Losing an employer 401(k) match feels like the retirement downside of gig work. In reality, self-employment opens the door to accounts that let you shelter far more than any typical employee ever could — a Solo 401(k) can absorb tens of thousands of dollars a year that a workplace plan would cap. The catch is that nobody sets these up for you and the rules look intimidating from the outside. Once you see the contribution math side by side, choosing is straightforward.

The three accounts, in one paragraph each

The Roth IRA is the starter account: anyone with earned income can contribute up to $7,000 a year ($8,000 if 50 or older), with post-tax dollars that grow and come out completely tax-free in retirement. Income limits apply at higher earnings. It requires no business paperwork and works alongside the other accounts.

The SEP IRA is the simple business account: you can contribute up to 25 percent of your net self-employment income (roughly 20 percent of profit after the self-employment tax adjustment), to a high annual cap. It is easy to open, has almost no administration, but only allows employer-style contributions, which limits how much a modest earner can put in.

The Solo 401(k) is the power account for a one-person business. You contribute in two capacities: as the employee you can defer up to the annual elective limit (around $23,500 in 2025, plus catch-up if 50+), and as the employer you add up to 25 percent of net income on top. For low and middle earners this combination shelters dramatically more than a SEP at the same income, because the employee deferral is a flat dollar amount rather than a percentage.

The contribution math that decides it

The key insight is that a SEP only lets you contribute a percentage of profit, while a Solo 401(k) lets you contribute a big flat amount plus that same percentage. At lower incomes, the flat employee deferral wins by a mile. At very high incomes, the two converge because both hit the same overall cap. The table shows roughly how much each account can absorb at three profit levels for someone under 50, using 2025 figures.

The asterisk on the Roth at $100,000 is a reminder that Roth IRA eligibility phases out at higher incomes, though a Solo 401(k) can include a Roth sub-account with no income limit. Read the SEP and Solo columns carefully: at $30,000 of profit the Solo 401(k) shelters over five times what the SEP does, because the roughly $23,500 employee deferral can be nearly your entire profit while the SEP is stuck at a small percentage.

How to choose in practice

1. Earning a few thousand on the side? Open a Roth IRA first — simplest account, tax-free growth, no business paperwork.
2. Self-employed with real profit and no employees? A Solo 401(k) almost always shelters more than a SEP at the same income, especially below $100,000 of profit.
3. Want maximum simplicity and hate forms? A SEP IRA is nearly zero-maintenance, a fair trade if the lower contribution room does not bind you.
4. Have employees beyond a spouse? The Solo 401(k) no longer fits; look at a SEP or a small-business 401(k) instead.
5. Want tax-free withdrawals later? Use Roth versions where available; want a deduction now? Use traditional. You can split.

The tax lever most gig workers miss

Traditional (pre-tax) contributions do double duty for the self-employed: they lower your income tax and, because they reduce adjusted gross income, they can also raise your health insurance marketplace subsidy. A middle-income driver who contributes $10,000 to a traditional Solo 401(k) might save 22 percent in federal tax plus a meaningful bump in premium subsidy — an effective return of well over 30 percent before the money even starts growing. Roth contributions skip the upfront break in exchange for tax-free withdrawals, which suits younger or lower-bracket earners who expect higher taxes later.

The bottom line

Gig work removes the employer match but hands you better containers. Start with a Roth IRA for its simplicity and tax-free growth, graduate to a Solo 401(k) once profit is real because it shelters far more than a SEP at the same income, and reserve the SEP for when you value zero paperwork over maximum room. Whichever you choose, self-employment lets you save more for retirement than most employees ever can — you just have to open the account yourself.