By Gruv Editorial Team
You’ve absolutely crushed it. You learned your craft, built a client roster, and you’re navigating the wild world of invoicing and marketing like a seasoned pro. We’re proud of you. But then the topic of retirement planning comes up, and it feels like you've been handed a puzzle with half the pieces missing.
It's a familiar feeling for all of us. You hear the terms—SEP IRA, Solo 401(k)—and the big question looms: Can I hedge my bets and have both?
Let's clear this up right now. Yes, you can technically own both a SEP IRA and a Solo 401(k). You can have them sitting right next to each other in your brokerage account. But here is the single most important rule you need to tattoo on your brain: for any single business, you can only make employer contributions to one of those plans in any given year.
That’s it. That’s the key.
It’s not about which account is open; it’s about which account you fund. Understanding this distinction is the difference between a powerful, tax-advantaged strategy and a compliance headache. This guide is here to walk you through the rules, show you why you might switch from one plan to the other, and give you a clear path forward.
Imagine you’re at the best brunch buffet in town. To your left, a station piled high with perfectly crispy bacon and artisanal sausages. To your right, a custom omelet bar with every ingredient you could dream of. The house rule is simple: you can only fill your plate from one of those main stations each time you go up.
That’s a great way to think about how the IRS views your employer contributions to a SEP IRA and a Solo 401(k). For any single business you run, you have to pick one plan to fund for the year. You can’t load up your plate from both.
So, why the rule? It’s not just to make your life more complicated, I promise. It comes down to preventing what the government calls “double-dipping.”
Both a SEP IRA and the employer portion of a Solo 401(k) are funded by your business. They are employer contributions. You, the business owner, are making a contribution on behalf of your company and taking a tax deduction for it. If you were allowed to contribute the maximum to both plans from the same pool of business income, you’d essentially be taking two giant tax deductions for the same work. The IRS, understandably, isn’t a fan of that.
They see both plans as drawing from the same well. So, they make you choose which bucket you’re filling for the year. This is the cornerstone of managing these two accounts. Get this right, and everything else falls into place.
Here’s the bottom line:
When you first launched your business, a SEP IRA was probably the perfect fit. It’s the trusty sedan of retirement plans: simple, reliable, and easy to get started with. You could set it up in minutes and start saving. But your business isn't the same as it was back then. It's grown. You’re more established, your income is more predictable, and your financial goals are bigger.
Is that trusty sedan still getting you where you need to go, or is it time for an upgrade to a high-performance engine?
For many of us, as our freelance career matures, the Solo 401(k) becomes that engine. It's a natural and powerful next step. The magic of the Solo 401(k) lies in its structure. It recognizes that as a business owner, you wear two hats: you are both the employee doing the work and the employer running the show. This means you can contribute to your retirement from two different pools of money.
First, you can contribute as the "employee," putting in up to 100% of your compensation, up to the annual limit ($23,000 in 2024). Then, you put on your "employer" hat and contribute another 25% of your net adjusted self-employment income. The SEP IRA only allows for the employer contribution. This dual-contribution power often means you can sock away significantly more money each year, especially if you're not yet at a six-figure income.
But it’s not just about saving more. It’s about having more options. The Solo 401(k) is like a Swiss Army knife compared to the SEP IRA's single blade. It comes packed with features that give you incredible flexibility.
Switching from a SEP IRA to a Solo 401(k) isn't a sign you made a mistake starting out. Far from it. It's a sign of success. It means your business has evolved, and now your financial strategy needs to evolve with it.
So you’ve decided the Solo 401(k) is your next power move. Smart. But then a little knot of anxiety forms in your stomach as you look at the SEP IRA you've been diligently funding for years. What happens to all that hard-earned money? Do you have to leave it behind?
Relax. You absolutely don’t. Think of it like this: you've been working out in a solid, reliable community gym (your SEP IRA), but you've decided to build a state-of-the-art home gym (your Solo 401(k)) that’s perfectly tailored to your goals. You wouldn't just abandon all your favorite free weights and equipment, would you? Of course not. You’d move them into the new space.
The transition is just as straightforward.
The first step is a clean break for the current tax year. You simply stop making contributions to your SEP IRA and open your new Solo 401(k). That's it. You've officially switched your funding destination for this year forward.
Now, for that existing SEP IRA balance. You have two choices:
Why roll it over? Because consolidation is clarity. Having all your self-employed retirement funds in one account gives you a single, powerful dashboard for your future. It simplifies managing your investments, tracking your progress, and rebalancing your portfolio. One login. One statement. One less thing to worry about.
Here’s the game plan, boiled down:
Look, the rules around self-employed retirement can feel like they were written in another language. It’s no wonder so many of us get stuck. Let's clear up some of the most common questions we hear from fellow freelancers managing these powerful accounts.
Yes, absolutely. In fact, this is a smart move we see all the time. Think of it like moving all your tools from an old, smaller toolbox into a big, new one with more compartments. Consolidating your retirement funds into your new Solo 401(k) just makes everything easier to manage and track.
The key is to do a direct rollover. This means the money moves directly from your SEP IRA provider to your new Solo 401(k) provider without ever touching your personal bank account. This is crucial because it keeps the move from becoming a taxable event. It's clean, simple, and keeps all your hard-earned savings working for you in one place.
Okay, first, don't panic. It’s a fixable mistake. This creates what the IRS calls an "excess contribution." It’s like accidentally paying a bill twice; you don’t lose the money, but you do have to go through a specific process to get it back and correct the record.
You must withdraw the extra contribution—and any earnings that money generated—from one of the plans before your tax-filing deadline for that year. If you don't, you'll face penalties. This is one of those times where it's not worth trying to DIY the fix. Your best bet is to immediately contact your plan administrator or a financial advisor. They’ve seen this before and can walk you through the exact steps to make it right.
This one isn't even a close contest. The Solo 401(k) is the clear winner here. It has a superpower the SEP IRA just doesn't.
The Solo 401(k) allows you, as the "employee," to make an additional catch-up contribution on top of the standard limits. For 2025, that's an extra $7,500 you can sock away. The SEP IRA has no such feature. For anyone 50 or over looking to aggressively ramp up their savings as they approach retirement, the Solo 401(k) offers a massive advantage.
This is a super common scenario, especially for those of us with a side hustle or who are in the middle of transitioning to full-time freelancing. The short answer is yes, you can absolutely contribute to both your day job's 401(k) and your self-employed plan.
But there’s a crucial catch you need to understand. The limit on your employee contributions is shared across both 401(k)s. Let's say you max out your employee contribution at your W-2 job. You can't then make another employee contribution to your Solo 401(k). However—and this is the important part—you can still make the separate employer contribution to your Solo 401(k) based on your self-employment income. You're wearing two hats (employee and employer), and they have different contribution rules.
This is one of those details that can really trip you up, so let's make it crystal clear because they are different.
The takeaway? If it’s already January and you’re just now thinking about a retirement plan for last year, the SEP IRA is your only option. For the Solo 401(k), you have to plan ahead.
Alright, let's bring this home. We've untangled the rules and laid out the playbook. You know you can have both accounts, but you also know the critical rule: you only get to fund one per year for your business.
So, the real question lands squarely in your lap. Which plan will be your champion for this year?
This isn't about picking a "forever" plan. It's about looking at your business, your income, and your life right now and deciding which tool serves you best. Think of it like this:
If you want maximum firepower and flexibility, the Solo 401(k) is almost always the answer. It’s your financial Swiss Army knife. Packed with features for almost any situation.
But what if your priority is dead-simple execution? We get it. Sometimes, you just want the most straightforward path from A to B. The SEP IRA is that reliable workhorse. It’s incredibly easy to manage, and if you have plans to hire employees (who aren’t your spouse), it’s your only option between the two. It’s a fantastic tool, especially for those who value simplicity above all else.
There’s no wrong answer here—only the answer that’s right for you, for this year. Look at your projections, consider your personal financial needs, and make a conscious choice.
Here’s your action plan:
Yes, absolutely. In fact, this is a smart move we see all the time. Think of it like moving all your tools from an old, smaller toolbox into a big, new one with more compartments. Consolidating your retirement funds into your new Solo 401(k) just makes everything easier to manage and track.
The key is to do a direct rollover. This means the money moves directly from your SEP IRA provider to your new Solo 401(k) provider without ever touching your personal bank account. This is crucial because it keeps the move from becoming a taxable event. It's clean, simple, and keeps all your hard-earned savings working for you in one place.
Okay, first, don't panic. It’s a fixable mistake. This creates what the IRS calls an "excess contribution." It’s like accidentally paying a bill twice; you don’t lose the money, but you do have to go through a specific process to get it back and correct the record.
You must withdraw the extra contribution—and any earnings that money generated—from one of the plans before your tax-filing deadline for that year. If you don't, you'll face penalties. This is one of those times where it's not worth trying to DIY the fix. Your best bet is to immediately contact your plan administrator or a financial advisor. They’ve seen this before and can walk you through the exact steps to make it right.
This one isn't even a close contest. The Solo 401(k) is the clear winner here. It has a superpower the SEP IRA just doesn't.
The Solo 401(k) allows you, as the "employee," to make an additional catch-up contribution on top of the standard limits. For 2025, that's an extra $7,500 you can sock away. The SEP IRA has no such feature. For anyone 50 or over looking to aggressively ramp up their savings as they approach retirement, the Solo 401(k) offers a massive advantage.
This is a super common scenario, especially for those of us with a side hustle or who are in the middle of transitioning to full-time freelancing. The short answer is yes, you can absolutely contribute to both your day job's 401(k) and your self-employed plan.
But there’s a crucial catch you need to understand. The limit on your employee contributions is shared across both 401(k)s. Let's say you max out your employee contribution at your W-2 job. You can't then make another employee contribution to your Solo 401(k). However—and this is the important part—you can still make the separate employer contribution to your Solo 401(k) based on your self-employment income. You're wearing two hats (employee and employer), and they have different contribution rules.
This is one of those details that can really trip you up, so let's make it crystal clear because they are different.
The takeaway? If it’s already January and you’re just now thinking about a retirement plan for last year, the SEP IRA is your only option. For the Solo 401(k), you have to plan ahead.