The retirement plan most consultants end up with is the one that can be opened at the last minute, not the one that fits the income. That is not an accident. A SEP IRA can be set up and funded in April for the year that already ended, so it is what gets recommended at filing time, when the year is a finished fact. It works, and it is simple. For most consulting incomes, it is also the smaller shelter.
I see this most with executives who retire and then keep advising their old industry. The consulting was almost accidental, the income arrived, and the plan question got answered by whoever was holding the tax return in the spring.
Two Plans, One Real Difference
A SEP IRA holds one lever: the business contributes a percentage of your net self-employment earnings, in practice about 20% of net profit. No profit percentage, no contribution. The plan scales with income and nothing else.
A solo 401(k) holds two levers, because you wear two hats. As the employee, you can defer up to $24,500 of 2026 compensation, and more past age 50: an extra $8,000, or $11,250 in the years you are 60 through 63. As the employer, the business adds the same one-fifth share a SEP would. Both layers together can reach $72,000 for 2026.
At high six-figure consulting income, the two plans converge; the percentage alone fills the bucket. The gap lives in the middle, which is where most post-career consulting sits.
What the Gap Looks Like
Take a retired VP, age 61, netting $80,000 a year advising two former competitors. Approximate numbers, 2026 limits, no other plan contributions that year.
The SEP holds about $15,000. That is the percentage lever at its limit.
The solo 401(k) holds about the same $15,000 employer share, plus the $24,500 deferral, plus the $11,250 catch-up for her age band. A bit over $50,000, on identical income. The difference is not a clever strategy. It is a bigger bucket, sitting one form away.
There is a catch, and it explains the whole pattern: the employee deferral needs the plan established and the election made before the year ends. The solo 401(k) rewards deciding in November. The SEP forgives deciding in April. The forgiving plan is the filing-season plan, and the filing season is the one season when nobody can act anymore. If that sounds like the same calendar problem I keep writing about, it is.
Three Things Worth Knowing Before Choosing
The deferral limit is per person, not per plan. If you deferred into an employer’s 401(k) earlier in the same year you started consulting, that counts against the $24,500. The employer-share layer is separate and unaffected.
A solo 401(k) can take Roth contributions. For a consultant filling low-tax years on purpose, choosing which side of the plan to fill is a real decision, and it connects to everything else in your tax picture: brackets, Medicare surcharges, what your accounts look like at required-distribution age. Which lever to pull, in which year, is a diagnosis. Asked in the abstract, every answer is wrong for someone.
And a solo 401(k) carries a bit more admin than a SEP, though far less than people fear. For a one-person business it comes down to one election, one account, and in time one annual form once the balance is large.
The takeaway: if you consult and your plan is a SEP, nobody made a mistake. But odds are the calendar made the choice, not the numbers, and the numbers say a 61-year-old netting $80,000 left about $35,000 of shelter unused. Decide in the fall, while both plans are still available.
FAQ
Can I have both a SEP IRA and a solo 401(k)?
You pick one per business as a rule, and mixing them in the same year creates coordination problems. The choice matters most in the year you make it, because the solo 401(k)’s deferral layer requires acting before December 31.
How much can a consultant put in a solo 401(k) for 2026?
Up to $24,500 as employee deferral, plus $8,000 catch-up at 50 or older ($11,250 at ages 60 through 63), plus an employer share of about 20% of net self-employment earnings, capped at $72,000 of total annual additions.
Is a SEP IRA ever the better choice?
Yes. If the year is already over, the SEP is the only one of the two that can still receive a full contribution. It is also reasonable at high six-figure consulting incomes, where the percentage lever alone reaches the cap, or when simplicity is worth more than the extra room.
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This article is education, not individual advice. What fits you depends on your full picture.