Self employed 401K vs SEP

My wife is traditional W2 wage earner ($90K) and maxes out her 401K. In addition she does some lucrative fill in shift for a different company (1099) and earns good money on the side. I want to invest as much of this as possible in tax deferred plan. So far this year he earnings are about $18K on this side gig but will grow about $2,000 for every shift she picks up. With the prospects of her going on a IBR repayment plan for her student loans, I would like to have the smallest AGI possible.

We file MFS for more than one reason but with the new student loan IBR limits of 10% discretionary income greater than 225% poverty, it makes sense for her to switch to IBR from full repayment that she has historically done.

My question is limits on solo 401K vs SEP. She is currently just set up for a Sch C (not incorporated) and not sure if this will continue on forever or is just short term. Her income form this side gig is not reliable as she might go a month without doing any shifts (her choice) then pick up a few in a week.

Anyone with any real experience with these types of plans?

In the 2001-2010 timeframe I was able to put $30K to $45K a year in a SEP. It made a difference in retirement. I think the contribution limit is $61K for year 2022.

It is $61K for 2022: SEP Contribution Limits (including grandfathered SARSEPs) | Internal Revenue Service

I used a solo 401k when I did independent work. When I researched this, that seemed to allow slightly more money to be put away than the SEP and the additional paperwork wasn’t too bad. You might need to get a TIN or something from the IRS I don’t remember. But I think the bottom line financially is that the 401k has the “employer” and “employee” contribution parts. So, if her earnings on the side are around $18K she can deposit that all as employee contribution and defer tax on all of it. The employee contribution limit for 2022 under 50 years old is $20,500. Then as the “employer” part you can put more away until the total of both is the $61K mentioned by others for 2022 at 20% or 25% of income I forget which. You could also research a Solo Roth 401k which might be a better option long term in some ways if you can find it, but you seem to want to lower your current taxes.

Thanks for the responses. Yes I want to lower 2022+ AGI. Ill look into the options.

Look for the article “What Is a Solo 401(k) and How Does It Work?” by Christopher Smith on Clark’s web site. Although, what Cark and his team seem to focus on more is the simpler paperwork of the SEP, rather than the maximum percentage of income (profit) that you can sock away tax deferred. Here is a comparison of that taken from the individualk web site;


“Individual(k)” is just their brand name for a Solo 401k, but you can open one at Fidelity or Schwab or whatever. You can see how much more you can defer with the solo 401k, especially at the low end, where (assuming your $18K profit number) you would be able to reduce your AGI by $18K with the solo 401k but only $4500 with the SEP.