Solo 401(k), SEP IRA, or Cash Balance Plan: Which One Fits?

A lot of business owners open a SEP IRA early on because it's simple, and never look at the alternatives again. Here's a quick comparison of the three main options.

SEP IRA: simple, but limited

A SEP is easy to set up. The whole contribution comes from the business, capped at 25% of your compensation, up to $72,000 for 2026. There's no option to add your own employee contribution on top.

Solo 401(k): same max, easier to reach

If you don't have employees (other than a spouse), a solo 401(k) gets you to the same $72,000 cap through two pieces: up to $24,500 as your own contribution, plus a profit-sharing contribution from the business. If you're 50 or older, you can add a catch-up contribution of $8,000 (or $11,250 if you're 60-63), pushing the total higher. Because part of it doesn't depend on the 25% formula, it's often easier to max out than a SEP.

Cash balance plan: for bigger deductions

If you're looking to save well beyond what a 401(k) allows, usually once you're in your mid-40s or later, a cash balance plan can allow six-figure deductible contributions based on your age and income. It comes with more paperwork (an actuary is required) and a commitment to keep funding it for several years, so it works best for owners with steady income.

How to choose

It comes down to how much you want to set aside, how steady your income is, and how much paperwork you're willing to take on. A SEP or solo 401(k) is plenty for many owners; a cash balance plan is worth a look if you're trying to catch up quickly on retirement savings.

If it's been a while since anyone compared your retirement plan to the alternatives, we're happy to run the numbers — reach out to Bottala Tax & Advisory at info@bottalacpa.com.