Yes. A SEP IRA for your own business and a 401(k) at your job are plans of unrelated employers, so they don’t share a limit. The IRS says you can set up a SEP for your self-employed business even if you participate in your employer’s plan at a second job (IRS).
A SEP and a Solo 401(k) in the same business are also allowed, but both are plans of the same employer, which is you. What goes into each is added together against one annual limit ($72,000, or 100% of your compensation if that’s lower, for 2026), so the SEP usually adds nothing a Solo 401(k) doesn’t already give you (Publication 560).
Every combination at a glance
| Combination | Allowed? | What's shared | Source |
|---|---|---|---|
| 401(k) at your job + SEP for your business | Yes | Nothing. Unrelated employers, and a SEP has no employee deferral | IRS SEP FAQs |
| 401(k) at your job + Solo 401(k) | Yes | The employee deferral limit ($24,500 in 2026, plus catch-up) is one per person across both | IR-2025-111 |
| SEP + Solo 401(k) in the same business | Allowed, rarely worth it | One annual additions limit for all plans you maintain | Publication 560 |
| SEP + traditional or Roth IRA of your own | Yes | Nothing. The IRA limit ($7,500 in 2026, $8,600 at 50 or older) is separate from the SEP | IRS SEP FAQs |
401(k) at your job + SEP for your business
- Allowed?
- Yes
- What's shared
- Nothing. Unrelated employers, and a SEP has no employee deferral
- Source
- IRS SEP FAQs
401(k) at your job + Solo 401(k)
- Allowed?
- Yes
- What's shared
- The employee deferral limit ($24,500 in 2026, plus catch-up) is one per person across both
- Source
- IR-2025-111
SEP + Solo 401(k) in the same business
- Allowed?
- Allowed, rarely worth it
- What's shared
- One annual additions limit for all plans you maintain
- Source
- Publication 560
SEP + traditional or Roth IRA of your own
- Allowed?
- Yes
- What's shared
- Nothing. The IRA limit ($7,500 in 2026, $8,600 at 50 or older) is separate from the SEP
- Source
- IRS SEP FAQs
Sources: IRS Retirement plans FAQs regarding SEPs; IR-2025-111; IRS Publication 560 (2025). Full links are in the sources list below.
Why a SEP doesn’t compete with your day job’s 401(k)
A 401(k) lets you defer part of your own pay as “employee” contributions, and the IRS caps that deferral per person, added up across every 401(k) or 403(b) you participate in. A SEP IRA is entirely an employer contribution. There’s no salary-deferral election, so there’s nothing to add to a 401(k) deferral at another job. The IRS describes SEPs as funded by employer contributions only (IRS SEP FAQs).
Two different limits get mixed up here, so keep them apart:
- The SEP limit. What you put into a SEP-IRA can’t exceed the lesser of 25% of compensation or the dollar cap, which is $72,000 in 2026 (compensation counted is capped at $360,000). For a self-employed person, compensation is net earnings from self-employment after the deductible half of SE tax and the contribution itself, which is why 25% works out to about 20% of net profit (Publication 560, IRS).
- The overall limit. Across all the defined contribution plans one employer maintains, annual additions to an account are limited to the lesser of 100% of compensation or $72,000 for 2026. It covers “all of your accounts in plans maintained by one employer (and any related employer)” (IRS).
For a SEP on its own, the 25% rule is the tighter one. The overall limit matters when plans are stacked. Your day job and your own business are unrelated employers, so each gets its own overall limit.
How much you can put into each
Your day job’s 401(k) works as it does for any employee: up to $24,500 in elective deferrals for 2026 (plus catch-up if you’re 50 or older), within whatever your employer’s plan allows, per the 2026 COLA table.
Your SEP IRA is calculated from your net self-employment earnings alone: net profit, minus the deductible half of your self-employment tax, then 20% of that. The Self-Employed Retirement Contribution Calculator runs this and shows your SEP number next to what a Solo 401(k) would allow for the same income.
Example: a day job with a 401(k), plus freelance income
Both cases below are for 2026 and someone under 50. I ran them through the same calculator code the site uses.
| Item | Case 1 | Case 2 |
|---|---|---|
| Net profit from the side business | $40,000 | $60,000 |
| Deferred into the day-job 401(k) | $15,000 | $24,500 |
| Deductible half of SE tax | $2,826 | $4,239 |
| Plan compensation | $37,174 | $55,761 |
| Maximum SEP contribution (20%) | $7,435 | $11,152 |
| Total saved with a SEP | $22,435 | $35,652 |
| Solo 401(k) instead: employer part + remaining deferral room | $7,435 + $9,500 = $16,935 | $11,152 + $0 = $11,152 |
| Total saved with a Solo 401(k) | $31,935 | $35,652 |
Net profit from the side business
- Case 1
- $40,000
- Case 2
- $60,000
Deferred into the day-job 401(k)
- Case 1
- $15,000
- Case 2
- $24,500
Deductible half of SE tax
- Case 1
- $2,826
- Case 2
- $4,239
Plan compensation
- Case 1
- $37,174
- Case 2
- $55,761
Maximum SEP contribution (20%)
- Case 1
- $7,435
- Case 2
- $11,152
Total saved with a SEP
- Case 1
- $22,435
- Case 2
- $35,652
Solo 401(k) instead: employer part + remaining deferral room
- Case 1
- $7,435 + $9,500 = $16,935
- Case 2
- $11,152 + $0 = $11,152
Total saved with a Solo 401(k)
- Case 1
- $31,935
- Case 2
- $35,652
Computed with the site's retirement contribution calculator code and the 2026 limits. Rounded to the dollar.
The day-job deferral has no effect on the SEP in either case. It does shrink the Solo 401(k)’s extra room, because the $24,500 deferral limit is shared. In case 2 the deferral is maxed at work, so the Solo 401(k) is no bigger than the SEP and comes with more paperwork. One caveat on the SE tax line: if your wages plus your net self-employment earnings pass $184,500, the Social Security part of the tax shrinks, and so does the half you deduct. Self-Employment Tax Explained shows how wages use up that cap.
Can an employee contribute to a SEP IRA?
Not through the plan. A SEP is funded by employer contributions only, and the IRS notes that catch-up contributions don’t apply because they are for employee elective deferrals (IRS SEP FAQs). The employee owns and controls the SEP-IRA, but the money going in under the plan comes from the employer.
Two things to know:
- Regular IRA contributions are a separate matter. A SEP-IRA is a traditional IRA. If the account permits non-SEP contributions, the employee can make regular IRA contributions to it, up to the annual IRA limit, and catch-up if 50 or older. Those dollars count against the IRA limit you have for other IRAs, including a Roth. The deduction may be reduced or removed because of the SEP.
- SARSEPs are the exception. A SARSEP, set up before 1997, let employees defer part of their pay. No new ones have been allowed since 1996, and their deferrals are added to your 401(k) deferral limit (IRS SARSEP FAQs).
If you’re self-employed, you are both the employer and the employee, so you make the SEP contribution as the employer. Our SEP IRA guide explains how that contribution is calculated.
Can you contribute to an IRA and a SEP in the same year?
Yes. Employer contributions to your SEP don’t reduce what you can put into a traditional or Roth IRA on your own. For 2026 the IRA limit is $7,500, plus $1,100 at 50 or older (IR-2025-111).
What changes is the deduction for a traditional IRA. The IRS counts you as covered by a retirement plan when contributions go into your SEP for the year (IRS), so the deduction phases out at these 2026 income levels:
- Single or head of household: $81,000 to $91,000.
- Married filing jointly, you’re covered: $129,000 to $149,000.
- Married filing jointly, only your spouse is covered: $242,000 to $252,000.
- Married filing separately: $0 to $10,000.
Roth IRA eligibility has its own income limits and isn’t affected by being in a SEP. I list those and explain why a Roth is often the better fit in Roth IRA for Freelancers in 2026.
Timing: payroll now, SEP later
Publication 560 says an employee’s deferrals must be elected by the end of the tax year, so your day-job 401(k) goes in through payroll during 2026. The SEP can be set up and funded as late as the due date of your 2026 return, including extensions.
So you can max out the 401(k) during the year and decide on the SEP once your side-business books are closed, the approach I describe in How to Save for Retirement With Irregular Income.
A SEP and a Solo 401(k) for the same business
You can maintain both. The IRS says you can have a SEP and another plan, though you can’t use the IRS model Form 5305-SEP unless the other plan is also a SEP (IRS SEP FAQs).
The limit is the problem. Publication 560 says that because a SEP is a defined contribution plan, you must add your SEP contributions to your contributions to the other defined contribution plans you maintain when figuring the annual additions limit, the lesser of $72,000 or 100% of compensation in 2026. A Solo 401(k)’s employer contribution is figured the same way as a SEP’s, so a SEP on top doesn’t add room. If you want the extra, it’s the Solo 401(k)’s employee deferral that provides it. Solo 401(k) vs. SEP IRA compares the two side by side at six levels of profit.
If you have employees, a SEP also means contributing for the eligible ones whenever you contribute for yourself.
When a Solo 401(k) would add more, and when it wouldn’t
A Solo 401(k) beats a SEP only by the deferral room you have left. In case 2 above, you’ve used the full $24,500 at work, so a Solo 401(k)’s employer-side contribution would be the same $11,152 as the SEP. In case 1, with $15,000 deferred at work, $9,500 of the $24,500 limit is unused, so a Solo 401(k) allows $16,935 against the SEP’s $7,435. Can I Have a Solo 401(k) and a 401(k) at Work? covers how that shared deferral limit works.
Common mistakes
- Adding your W-2 wages to the SEP calculation. For a self-employed person, SEP compensation means net earnings from self-employment, per the IRS SEP FAQs. Your salary never enters it. Publication 560 adds that if you have more than one business but only one has the plan, only that business’s earnings count.
- Figuring 25% of net profit. On $60,000, that would be $15,000, which is $3,848 more than the maximum of $11,152. The reason is in SEP IRA for the Self-Employed.
- Thinking the employer match cuts into your SEP. The match counts toward the day-job plan’s own overall limit. Your SEP has a separate limit, because the two employers are unrelated.
- Assuming a SEP stops you from using a Roth IRA. It doesn’t. It can only reduce the traditional IRA deduction.
