Retirement savings methodology

Solo 401(k) two-stack structure

Solo 401(k) max contribution =
    Employee elective deferral (per IRC §401(k))
        + age-50+ catch-up
  + Employer-side contribution (per IRC §415(c))
        = 25% of net SE earnings (post-SE-tax adjustment)

Combined cap = §415(c) limit ($70,000 in 2025;
                $77,500 with age-50+ catch-up)

Net SE earnings for this calc =
    Schedule C net income
  − ½ × SE tax (per IRS Pub 560 example 5)

The employee-side $23,500 (2025) is a flat amount independent of income, so the Solo 401(k) advantage over SEP-IRA is largest for self-employed earning under ~$300K — at higher incomes both plans cap at the §415(c) overall limit.

SEP-IRA employer-only mechanic

SEP-IRA max contribution per IRC §408(k):
    25% of net SE earnings (post-SE-tax adjustment)
    capped at §415(c) overall limit

The 25%-of-net-SE-earnings translates to ~20% of gross SE income
because the SE-tax adjustment reduces the base.

Sources

• IRS Publication 560 — Retirement Plans for Small Business
• IRC §401(k) — Cash or deferred arrangements
• IRC §408(k) — Simplified Employee Pensions (SEP)
• IRC §415(c) — Limitation for defined contribution plans