SEP vs. SIMPLE vs. Solo 401(k) vs. Cash Balance: 2026 Plans Compared

The short answer: if you have no employees other than a spouse, a Solo 401(k) usually lets you put away the most for the least cost, often up to $72,000 for 2026. If you have employees, a 401(k) with profit sharing gives the most flexibility, a SEP IRA is the simplest, and a SIMPLE IRA is the lowest-limit option. Owners with steady, high profits who have already filled a 401(k) can add a cash balance plan to contribute far more.

Here is how the five plans compare for 2026, who each one fits, and the deadlines that decide whether a plan counts for this year.

The 2026 numbers at a glance

All limits below come from IRS Notice 2025-67 and the IRS’s plan pages for 2026.

Pay counted for these plans is capped at $360,000 for 2026. For self-employed owners (sole proprietors and partners), the 25% employer figure works out to about 20% of net self-employment earnings after the deduction for half of self-employment tax.

Which plan fits which owner

SEP IRA: simple, flexible, best with few or no employees

A SEP is little more than an IRA the business funds. There’s no annual testing and usually no annual filing, and you don’t have to contribute every year. The catch is fairness: in any year you contribute, eligible employees receive the same percentage of pay you do. For 2026, an employee is generally eligible after reaching age 21, working for you in 3 of the last 5 years, and earning at least $800. With a few well-paid employees, that cost adds up fast.

A SEP also has no employee deferral, which leaves money on the table for owners with modest W-2 pay. That is why many solo owners outgrow it.

SIMPLE IRA: a starter plan for small teams

A SIMPLE IRA lets employees defer from their pay, and the business must either match up to 3% of pay or give every eligible employee 2%. Employees are generally eligible once they earned at least $5,000 in any 2 earlier years and expect to earn $5,000 this year. The employer cost is predictable, and administration is light.

The tradeoffs: the $17,000 deferral limit is lower than a 401(k)’s, the business can’t maintain any other retirement plan in the same year, and money can’t be rolled to a regular IRA tax-free until after 2 years of participation.

Solo 401(k): the most room for an owner without employees

A Solo 401(k) lets you contribute twice, as the employee and as the employer. An S corporation owner can defer up to $24,500 from salary and receive an employer contribution of up to 25% of W-2 pay, up to the $72,000 total. Once plan assets reach $250,000, the plan files Form 5500-EZ each year. Our Solo 401(k) guide walks through the math, and the Solo 401(k) calculator runs it quickly.

If your plan document allows after-tax contributions and in-plan Roth conversions, you can fill the rest of the $72,000 limit with after-tax money and convert it to Roth. That is the mega backdoor Roth.

401(k) with profit sharing: built for businesses with employees

Once you have eligible employees, a traditional 401(k) carries the same limits as a Solo 401(k), but it must treat employees fairly under nondiscrimination tests. Highly compensated employees (generally those who earned more than $160,000 in the prior year) can be limited if rank-and-file employees don’t save enough. Safe harbor designs, where the business makes a required contribution for employees, generally avoid the main tests. Profit sharing formulas can be designed to direct more of the employer contribution to owners within the rules. This plan costs more to run, but it scales with the business.

Cash balance plan: for big contributions on top of a 401(k)

A cash balance plan is a pension plan where each participant has a hypothetical account. Because the allowed contribution rises with age, owners in their 50s and 60s with steady profits can often contribute well beyond what a 401(k) allows. The costs are real: contributions are required each year, an actuary has to certify them, and the plan is expected to run for several years. When a business sponsors both a cash balance plan and a 401(k), a combined deduction limit can apply, which usually shapes how big the 401(k) profit share should be. See our cash balance plan guide for how the pieces fit.

An illustrative side by side

Picture a hypothetical S corporation owner, age 45, with no employees and a $150,000 W-2 salary. For illustration purposes. Tax law may change, which may change these calculations slightly.

• SEP IRA: 25% of $150,000 = $37,500.
• SIMPLE IRA: $17,000 deferral plus a 3% match of $4,500 = $21,500.
• Solo 401(k): $24,500 deferral plus a 25% employer contribution of $37,500 = $62,000.

Same owner, same salary, very different results. Add employees, and the comparison shifts again, because each plan’s employee cost is different.

Deadlines that decide whether a plan counts

• SEP IRA: can be set up and funded as late as the business’s tax return due date, including extensions.
• SIMPLE IRA: generally must be set up between January 1 and October 1 of the first plan year. A business that comes into existence after October 1 sets it up as soon as administratively feasible. Employer contributions are due by the return due date, including extensions.
• 401(k) plans: a defined contribution plan can be set up as late as the employer’s return due date, including extensions. A sole proprietor with no employees can adopt a 401(k) after year end if it is adopted by the tax filing deadline, not counting extensions. Employee deferrals for S corporation owners and other employees come out of pay, so they have to run through payroll during the year.
• Cash balance plans: can be adopted as late as the employer’s return due date, but contributions follow minimum funding rules, with the final contribution generally due 8½ months after the plan year ends.

One new rule for 2026: if your 2025 wages from the employer sponsoring the plan were over $150,000, any catch-up contributions to a 401(k) for 2026 must go in as Roth.

How we help

At Cannon & Brown Tax Advisors, choosing and sizing a retirement plan is part of your tax plan. We compare plans against your real profit, payroll, and employee costs, coordinate salary and deferrals before year end, and time contributions around your return. Our technology keeps your numbers current, and your tax strategist reviews every recommendation. If you’d like to see which plan fits your business, start with a free tax analysis.

Illustrative example. The people and figures in this article are hypothetical, used to explain how the rules work. They are not a client and not a promise of results.

This article is educational and is not tax advice for your situation. Tax law may change, which may change these rules and numbers.

Sources

• IRS: Notice 2025-67, 2026 cost-of-living adjustments for retirement plans
• IRS: 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500
• IRS: SEP contribution limits
• IRS: Retirement plans FAQs regarding SEPs
• IRS: SIMPLE IRA plan
• IRS: One-participant 401(k) plans
• IRS: Publication 560, Retirement Plans for Small Business