If you work for yourself, which ETFs belong in your SEP-IRA or Solo 401(k), and how much fits in them in 2026? Here is which ETFs fill each role, how to invest uneven income, the Roth options, and the contribution arithmetic for a freelancer earning $120,000.
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If you have no employees and want to save more than about 20% of your net self-employment income, a Solo 401(k) usually lets you put away the most. If you want the simplest account, or your income swings and you decide after the year ends, a SEP-IRA is easier. A SIMPLE IRA fits a small business with employees that wants a low-cost plan, not a solo saver chasing the maximum.
Scope. US sole proprietors, single-member LLCs and freelancers filing Schedule C, using 2026 IRS limits. Not covered: defined-benefit and cash-balance plans, S-corporation payroll planning, state taxes, and plans for businesses with many employees. This is education, not tax or investment advice; a CPA should confirm your own numbers.
| 2026 rules (IRS) | SEP-IRA | Solo 401(k) | SIMPLE IRA |
|---|---|---|---|
| Who puts money in | Employer only (you, as the business) | You as employee and as employer | You as employee, plus a required employer match |
| Employee deferral | None | Up to $24,500 (100% of pay cap) | Up to $17,000 ($18,100 in certain plans) |
| Employer share | 25% of pay = 20% of net SE earnings for you | Same 25% / 20% | 3% match or 2% of pay |
| Overall cap | $72,000 | $72,000 before catch-ups | Deferral + match |
| Catch-up (50+ / 60–63) | Not allowed | $8,000 / $11,250 | $4,000 / $5,250 ($3,850 at 50+ in certain plans) |
| Roth option | Allowed by SECURE 2.0 if your provider offers it | Designated Roth deferrals if the plan includes them | Allowed by SECURE 2.0 if your provider offers it |
| Latest set-up date | Tax deadline incl. extensions | Tax filing deadline without extensions if you want first-year employee deferrals (sole proprietor) | Between Jan 1 and Oct 1 |
| Paperwork | Minimal | Form 5500-EZ once assets reach $250,000 | Minimal |
| Employees | Must get the same % as you | Not allowed (spouse only) | Designed for them |
Sources: IRS IR-2025-111, IRS Notice 2025-67, IRS SEP page, IRS one-participant 401(k) page and IRS Publication 560, all accessed October 25, 2026. The 2027 limits had not been published on that date.
On your own pay, the “25% of compensation” employer limit works out to 20% of net self-employment earnings. That is because your compensation is defined after subtracting half of your self-employment tax and the contribution itself, so the two depend on each other. IRS Publication 560 handles this with a rate table: a 25% plan rate becomes 20% for the owner.
Sources: IRS, self-employment tax; Schedule SE (2025); the 2026 wage base from the SSA 2027 COLA fact sheet. Your plan provider or tax software runs the same worksheet; this simplified version ignores other income and the Additional Medicare Tax.
Illustrative example (Exent calculation from the IRS steps above). A 45-year-old designer with $120,000 of Schedule C profit, no employees and no other workplace plan:
| Line | Arithmetic | Amount |
|---|---|---|
| Earnings subject to SE tax | $120,000 × 92.35% | $110,820 |
| Self-employment tax | $110,820 × 15.3% | $16,955 |
| Half of SE tax (deductible) | $16,955 ÷ 2 | $8,478 |
| Net earnings for the plan | $120,000 − $8,478 | $111,522 |
| Employer share (20%) | $111,522 × 20% | $22,304 |
| SEP-IRA maximum | Employer share only | $22,304 |
| Solo 401(k) maximum | $24,500 deferral + $22,304 | $46,804 |
| Solo 401(k) at age 50–59 | + $8,000 catch-up | $54,804 |
| SIMPLE IRA, roughly | $17,000 + 3% match of about $111,500 | about $20,350 |
The gap narrows as income rises. At $250,000 of profit the same steps give an employer share of about $47,000, so a SEP allows about $47,000 and a Solo 401(k) about $71,500, close to the $72,000 cap. (At $250,000 the Social Security part of SE tax stops at the $184,500 wage base: SE tax ≈ 12.4% × $184,500 + 2.9% × $230,875 ≈ $29,573, half ≈ $14,787, net earnings ≈ $235,213, 20% ≈ $47,043.) A SEP only reaches $72,000 at net earnings of $360,000 (20% × $360,000). If the full $46,804 were deductible at a 22% federal bracket, it would cut federal income tax by about $10,300 in the year saved; the tax comes due on withdrawal unless you use Roth contributions.
Yes, in more ways than before, but it depends on your provider. A Solo 401(k) can hold designated Roth deferrals if the plan document includes them; if it doesn’t, the plan must be amended first (IRS designated Roth FAQs). SECURE 2.0 section 601 also permits SEP and SIMPLE IRA contributions to go to a Roth IRA for tax years after 2022 (IRS Publication 560). Not every custodian has built this, so ask before counting on it.
One trap matters for higher earners. A backdoor Roth conversion is taxed pro rata across all your traditional, SEP and SIMPLE IRA balances on December 31 (Form 8606 instructions). With $150,000 in a SEP-IRA, only $7,500 ÷ $157,500, or about 5%, of a $7,500 conversion would be tax-free. Solo 401(k) balances are not on that line, which is one reason self-employed savers who use the backdoor often prefer a Solo 401(k). The mechanics are in after maxing your 401(k).
Decide the employer share after the year ends, when you know your profit. The IRS says of a SEP: “You do not have to contribute every year,” and both a SEP and the employer share of a Solo 401(k) can be paid up to the tax-filing deadline including extensions (Publication 560). A practical rhythm many freelancers use:
The T-bill reserve is not an investment for growth; it keeps you from selling stock ETFs in a down market to pay a tax bill. More on cash holdings in SGOV vs BIL vs SHV.
The same broad, low-cost funds that suit any retirement account. A SEP-IRA and most Solo 401(k) providers let you buy any ETF at the broker, so you are not limited to a plan menu. Expense ratios from the issuers, October 2026.
| Role | ETFs that fit | Expense ratio | Where it usually goes |
|---|---|---|---|
| US stocks (growth core) | VTI, ITOT, SCHB | 0.03% | Roth portion first, then pre-tax |
| International stocks | VXUS, IXUS | 0.05–0.07% | Any account |
| Core bonds | BND, AGG | 0.03% | Pre-tax SEP or Solo 401(k) |
| Tax and income reserve | SGOV, BIL | 0.09–0.14% | Taxable brokerage, outside the plan |
A hypothetical illustration, not advice for everyone your age: the 45-year-old designer above puts the $46,804 Solo 401(k) total into roughly 55% VTI, 25% VXUS and 20% BND, which is $25,742, $11,701 and $9,361. Holding bonds in the pre-tax part and stocks in any Roth part follows Vanguard’s asset-location research, which puts taxable bonds in tax-advantaged accounts first (Vanguard). The fund choices are covered in the three-fund ETF portfolio and VOO vs VTI; if you would rather hold a single fund in the plan, see one-ETF retirement portfolios.
Counterexample: a side business next to a day job. An engineer earns a salary, defers the full $24,500 into the employer’s 401(k), and makes $40,000 of net profit consulting. Her deferral room is used up, because the IRS counts deferrals “by person, not by plan.” The Solo 401(k) can only take the employer share: $40,000 × 92.35% = $36,940; SE tax $5,652; net earnings $37,174; 20% = $7,435. A SEP-IRA allows exactly the same $7,435 with less paperwork. (Illustrative, Exent calculation.)
Limitations. The math assumes a sole proprietor with only Schedule C income; S-corporation owners calculate on W-2 wages instead. Tax rules shown are for 2026 and change yearly. Provider fees and features vary. Past fund costs and returns are not forecasts.
When your income is uneven, a rough market and a lean year can arrive together; the contribution rule and the tax reserve you set in advance are what keep the retirement money invested.
With no employees, a Solo 401(k) usually allows more because it adds an employee deferral of up to $24,500 in 2026. A SEP-IRA is simpler and equal only when your deferral room is already used elsewhere or your income is high enough to hit the $72,000 cap either way.
Up to $24,500 as employee deferral plus 20% of net self-employment earnings as the employer share, capped at $72,000 before catch-ups. Catch-ups add $8,000 at 50 or older and $11,250 at ages 60 to 63.
The lesser of 25% of compensation or $72,000; for a sole proprietor that works out to about 20% of net self-employment earnings. A SEP allows no employee deferrals and no catch-up contributions.
Yes, but the $24,500 employee deferral limit for 2026 is per person across all plans. If your workplace plan already uses it, the Solo 401(k) can only take the employer share.
Yes. The IRS lets you set up and fund a SEP for a year as late as your tax return due date including extensions.
No. The IRS says you do not have to contribute every year, which helps when self-employment income swings. If you have eligible employees, any year you contribute they must receive the same percentage.
Broad, low-cost index ETFs usually cover it: a US total-market fund such as VTI or ITOT (0.03%), an international fund such as VXUS (0.05%) and a bond fund such as BND (0.03%), mixed by time horizon.
Generally once plan assets reach $250,000 or more at year-end, according to the IRS one-participant 401(k) page.
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Educational content, not investment advice. Examples are illustrative; past performance does not guarantee future results.