Solo 401(k) and SEP IRA for 1099 contractors (2026)
Short answer: A 1099 contractor can save for retirement through a Solo 401(k) or a SEP IRA, and the calculator does not model those contributions: they are your own savings, not a cost, and they lower income tax but not self-employment tax. In 2026 a Solo 401(k) allows $24,500 of employee deferrals (plus $8,000 catch-up at 50+) and up to $72,000 in total; a SEP IRA allows up to 20% of net self-employment earnings, also capped at $72,000.
2026 limits
| Plan | Limit |
|---|---|
| Solo 401(k): employee deferral | $24,500 |
| Solo 401(k): catch-up, age 50+ | +$8,000 |
| Solo 401(k): catch-up, ages 60–63 | +$11,250 |
| Solo 401(k): employer contribution | up to 20% of net SE earnings |
| Solo 401(k): total (Section 415(c)), before catch-up | $72,000 |
| SEP IRA | up to 20% of net SE earnings, max $72,000 |
Net self-employment earnings means net profit minus the deduction for half of self-employment tax. Source: IRS Notice 2025-67 and the IRS page on retirement plans for self-employed people. Plan rules, deadlines and eligibility are set by the IRS and your plan provider; check them before contributing.
How it fits the W-2 vs 1099 comparison
- A W-2 employer match is money you would give up as a contractor, so the calculator counts it on the W-2 side and the break-even 1099 rate rises to cover it.
- Your own contributions as a contractor are savings, not a cost. They move money from taxable income into a retirement account, so they do not change which offer pays more; they change when you pay tax.
- Contributions are deducted for income tax but not for self-employment tax. The QBI deduction also shrinks, because it is based on income after the retirement deduction.
Worked example ($10,000 contribution)
Calculator defaults, single filer, Texas (no state income tax), $65/hr for 1,800 billable hours: profit $117,000, self-employment tax $16,532, net self-employment earnings $108,734, so the 20% limit is about $21,747. Without a contribution, federal income tax is $10,002. A $10,000 deduction lowers it to about $8,242, saving roughly $1,760 (about 18% of the contribution, less than the bracket rate because the QBI deduction falls too). State tax would change as well. Self-employment tax stays $16,532.
These figures come from the same engine as the calculator. They illustrate the effect and are not a recommendation to contribute any amount.
ContractMath is a decision-support tool. Results are estimates, not tax, legal or financial advice, and we are not responsible for decisions made from them. Talk to a plan provider or tax professional before opening a retirement plan.
FAQ
Does the W-2 vs 1099 calculator include Solo 401(k) or SEP IRA contributions?
No. The W-2 side counts the employer 401(k) match as a benefit you would give up, which raises the break-even 1099 rate. The 1099 side does not model your own retirement contributions, because they are savings you choose to make and not a cost of the contract.
How much can a 1099 contractor put in a Solo 401(k) in 2026?
Employee deferrals up to $24,500 (plus $8,000 if 50 or older, $11,250 at ages 60–63), plus an employer contribution of up to 20% of net self-employment earnings, with a combined limit of $72,000 before catch-up (IRS Notice 2025-67).
How much can a 1099 contractor put in a SEP IRA in 2026?
Up to 20% of net self-employment earnings (net profit minus half of self-employment tax), capped at $72,000 (IRS Notice 2025-67).
Do retirement contributions reduce self-employment tax?
No. They reduce income tax only. Self-employment tax is figured on net earnings before retirement contributions.
Open the W-2 vs 1099 calculator
Related: 1099 break-even rate · Salary to 1099 rate table · 2026 self-employment tax · 2026 estimated tax due dates · State comparison · Worked test cases · Solo 401(k) / SEP IRA · Methodology & sources