Retirement Planning: SEP-IRA vs Solo 401(k) for Relief Vets

The Solo 401(k) wins at every income level below $280,000. At $150,000 income, the Solo 401(k) lets you save $24,500 more per year than a SEP-IRA.

Pros:

• Much higher contributions at moderate incomes
• Roth option available (post-tax contributions, tax-free growth and withdrawals)
• Loan provision (borrow up to $50,000 from your own balance)
• Catch-up contributions for age 50+

Cons:

• Must be established by December 31 of the tax year (employee deferrals can't be made retroactively)
• Form 5500-EZ required annually once balance exceeds $250,000
• Slightly more complex to set up than a SEP-IRA
• Not available if you have any eligible employees (other than a spouse)

Which One Should You Choose?

If your net self-employment income is under $280,000 (most relief vets): Solo 401(k) is almost always better. The employee deferral gives you a $24,500 head start that the SEP-IRA can't match.

If you're past the tax filing deadline and haven't set up a plan yet: SEP-IRA is your only option, since it can be established retroactively. Open one, make your contribution, and then set up a Solo 401(k) for next year.

If you want a Roth option: Solo 401(k) is the only choice. The Roth 401(k) lets you make post-tax contributions that grow tax-free — valuable if you expect to be in a higher tax bracket in retirement.

Setup Deadlines

The December 31 deadline for the Solo 401(k) is the most important date. If you want to make employee deferrals for 2026, you must open the account by December 31, 2026. Miss this, and you're stuck with either a SEP-IRA or waiting until next year.

How to Open a Solo 401(k)

1. Choose a provider: Fidelity, Vanguard, and Schwab all offer free Solo 401(k) accounts with no annual fees
2. Complete the application: You'll need your EIN (Employer Identification Number — get one free at irs.gov if you don't have one)
3. Select your investments: Target-date funds are the simplest option. Index funds (total market, S&P 500) are popular for those who want more control.
4. Set up contributions: Make the employee deferral before December 31. You can make the employer contribution anytime before your tax filing deadline.
5. Keep records: Save your plan document, contribution receipts, and annual statements

The Traditional IRA: Don't Forget It

In addition to your Solo 401(k) or SEP-IRA, you can also contribute to a Traditional IRA ($7,500 for 2026, or $8,600 if age 50+). However, if you have a retirement plan through your business, the Traditional IRA deduction phases out at higher incomes.

A Roth IRA may still be available depending on your income level ($7,500 for 2026, income limits apply). Even if you can't contribute directly due to income limits, the "backdoor Roth" strategy (contribute to a Traditional IRA, then convert) remains available.

The Power of Consistent Contributions

A relief vet who contributes $40,000/year to a Solo 401(k) starting at age 35:

That's nearly $3 million by age 65 — from a plan that also reduces your annual tax bill by $10,000-$15,000 while you're contributing.

The Bottom Line

1. If you haven't started yet, open a Solo 401(k) before December 31 of this year
2. Contribute at least enough to meaningfully reduce your tax bill
3. If you miss the December 31 deadline, open a SEP-IRA (you have until the tax filing deadline)
4. Aim to increase contributions each year as your income grows
5. Consider the Roth 401(k) option if you're in a lower tax bracket now than you expect in retirement

The best time to start saving for retirement was the day you started doing relief work. The second best time is today.