SEP-IRA vs Solo 401(k) for Amazon Sellers: 2026 Limits, the Net-Earnings Formula and Deadlines

A self-employed Amazon seller with no employees can open either a SEP-IRA or a one-participant (solo) 401(k); both cap the employer-side contribution at 25% of compensation, which for a sole proprietor works out to 20% of net earnings after the deduction for one-half of self-employment tax. The difference is that a solo 401(k) adds employee elective deferrals on top, up to $24,500 for 2026, while a SEP allows no elective deferrals and no catch-up contributions (IRS, data checked 2026-10-12). For 2026 the IRS overall defined contribution limit for either plan is $72,000.

This guide compares the two IRS plans for sellers who report Amazon income on Schedule C: eligibility, 2026 dollar limits, the Publication 560 net-earnings formula, deadlines, paperwork, and what happens once you hire. It gives rules and criteria, not a recommendation for your situation. Federal rules only. General information, not tax advice.

SEP-IRA vs Solo 401(k) at a Glance

The table below summarizes the IRS pages listed in the sources line at the end (data checked 2026-10-12).

Who Can Open Each Plan

The IRS SEP page states: “A business of any size, even self-employed, can establish a SEP.” Contributions go into a traditional IRA for each participant, the SEP-IRA, and only the employer contributes; a sole proprietor is both employer and participant.

The IRS one-participant 401(k) page describes a plan “covering a business owner with no employees, or that person and his or her spouse.” It follows the same rules as any other 401(k), which is why you wear two hats: you make elective deferrals as the employee and nonelective contributions as the employer.

For an Amazon seller, “self-employed” usually means a sole proprietorship or a single-member LLC taxed by default, both of which report on Schedule C. The LLC guide covers how that default classification works. Your 1099-K from Amazon is not the number either plan uses; both plans start from Schedule C net profit, which the 1099-K guide separates from gross payouts.

Publication 560 adds that your net earnings “must be from your personal services, not from your investments.”

The 2026 Dollar Limits

Neither plan page lists dollar amounts for the year. The IRS COLA table does (page updated 24 August 2026, data checked 2026-10-12):

The IRS SEP contribution limits page (updated 28 June 2026) confirms that SEP contributions cannot exceed the lesser of “25% of the employee’s compensation, or” “$72,000 for 2026,” and that “Elective salary deferrals and catch-up contributions are not permitted in SEP plans.”

These figures change every year through cost-of-living adjustments. Read them as the 2026 values on the check date and recheck the IRS table for any later year.

The Net-Earnings Formula for Sole Proprietors

Both plan pages define your compensation the same way. Per the SEP page, it is “net earnings from self-employment, less the following deductions”: one-half of your self-employment tax and contributions to your own SEP-IRA. The one-participant 401(k) page gives the same two deductions. Because the contribution is subtracted from the base it is calculated on, a 25% plan rate becomes a smaller effective rate for the owner.

Publication 560 (2025), the edition the IRS lists “for use in preparing 2025 Returns” as of the check date, handles this with the Rate Table for Self-Employed. For a plan contribution rate of 25%, the table gives 0.200000, and its footnote says the deduction “can’t be more than 20% of your net earnings.” The Rate Worksheet reaches the same figure by dividing the plan rate by one plus the rate: 0.25 ÷ 1.25 = 0.20.

The Deduction Worksheet for Self-Employed in chapter 5 starts from Schedule C net profit (line 31), subtracts the deduction for one-half of self-employment tax to get net earnings, multiplies by the reduced rate, and caps the result by the compensation limit and the dollar limit. For a 401(k), steps 9 to 18 then add elective deferrals and catch-up contributions within those limits.

Worked example (tax year 2025, hypothetical numbers): assume Schedule C net profit of $100,000 and a deduction for one-half of self-employment tax of $7,065, using the 2025 worksheet limits as printed ($350,000 compensation, $70,000 dollar limit, $23,500 deferrals).

In the 401(k) column, step 13 takes the smallest of $18,587, $46,500 ($70,000 minus $23,500) and $34,717.50 (half of $92,935 minus $23,500), so the employer amount stays at $18,587. At this income level the deferral is what separates the plans; at higher net earnings the gap narrows as the dollar limit binds.

Two things move step 1. Every deduction on Schedule C, such as the home office deduction, lowers net profit and therefore the contribution base. And the self-employment tax figure comes from Schedule SE; the estimated quarterly taxes guide explains how that tax is built. The accounting software guide compares tools for keeping that Schedule C figure accurate.

Setup and Contribution Deadlines

The deadlines differ in one important way: extensions.

SEP-IRA. Publication 560 states: “You can set up a SEP for any year as late as the due date (including extensions) of your income tax return for that year.” Contributions follow the same rule: “you must make the contributions by the due date (including extensions) of your tax return for the year.” The SEP page also notes, “You do not have to contribute every year.”

Solo 401(k). Publication 560 says a sole proprietor “with no employees can adopt a section 401(k) plan after the end of the tax year, provided the plan is adopted by the tax filing deadline (without regard to extensions).” For elective deferrals, it states: “The employee deferrals must be elected by the end of the tax year” and “can then be made by the tax return filing deadline, including extensions.” For employer contributions to a profit-sharing plan, Publication 560 gives the due date of the employer’s return, including extensions.

The practical criterion: a seller who files an extension can still open a SEP for the prior year during the extension period, while a solo 401(k) adopted after year-end has to be in place by the unextended filing deadline. The one-participant 401(k) page states no deadlines.

What Changes When You Hire

Both plans change once you have eligible employees.

SEP-IRA. The SEP page says an eligible employee is anyone who “Has reached age 21,” “Has worked for the employer in at least 3 of the last 5 years,” and received at least the SEP minimum compensation ($800 for 2026). The rule is: “Employer must contribute equally for all eligible employees.” If you contribute 20% of your own net earnings, eligible employees get the same plan percentage of their pay. Contributions “are always 100 percent vested.”

Solo 401(k). The one-participant page is direct: “The no-testing advantage vanishes if the employer hires employees.” If they meet the plan eligibility requirements, “you must include them in the plan,” and their elective deferrals become subject to nondiscrimination testing “unless the 401(k) plan is a safe harbor plan or other plan exempt from testing.” At that point the plan is no longer a one-participant plan.

Hiring a spouse does not end the one-participant status, because the IRS definition covers the owner and spouse. Paying a virtual assistant as an independent contractor is a separate question from employment; the Form 1099-NEC guide covers how contractor payments are reported. Whether a worker is an employee decides which plan rules apply.

Paperwork and Ongoing Admin

A SEP can be set up with Form 5305-SEP; the SEP page says of it, “Do not file this form with the IRS.” The SEP page adds: “Generally, the employer has no filing requirements, including the Form 5500 return.” Publication 560 notes one restriction: you cannot use Form 5305-SEP if you “currently maintain any other qualified retirement plan other than another SEP,” and SEP contributions are added to contributions to any other defined contribution plan for the overall limit.

A solo 401(k) “is generally required to file an annual report on Form 5500-EZ” once it “has $250,000 or more in assets at the end of the year.” Below that, the page says the plan “may be exempt from the annual filing requirement.”

Both plans follow the general early-withdrawal rule the SEP page states: before age 59½, “generally a 10% additional tax applies.”

Decision Criteria: Which Questions Separate the Plans

Each question below points toward one plan’s mechanics; none decides the choice alone.

• How large is net earnings relative to the overall limit? At moderate income, the elective deferral is the main difference. As net earnings rise, 20% of net earnings alone approaches the $72,000 cap for 2026 and the gap shrinks.
• Are you 50 or older? Catch-up contributions exist only in the 401(k) column.
• Is it already past December 31? Deferrals must be elected by year end; a SEP can still be opened during an extension.
• Do you plan to hire within a few years? Compare the equal-percentage SEP rule with 401(k) inclusion and testing.
• How much admin do you accept? SEP has generally no annual filing; a solo 401(k) files Form 5500-EZ from $250,000 in assets.
• Do you want Roth contributions? Check whether the plan provider offers them under either plan.

Frequently Asked Questions

Can an Amazon seller have a SEP-IRA and a solo 401(k) in the same year?

Publication 560 says you cannot use the Form 5305-SEP model document if you maintain another qualified retirement plan other than another SEP, and SEP contributions are added to your other defined contribution plan contributions for the overall limit. A combined arrangement therefore cannot exceed the single overall cap, $72,000 for 2026.

What is the SEP-IRA deadline for a sole proprietor?

You can set up and fund a SEP for a year as late as the due date of your income tax return for that year, including extensions (Publication 560, data checked 2026-10-12).

How much can a sole proprietor put in a SEP-IRA for 2026?

Up to 20% of net earnings after the deduction for one-half of self-employment tax, which is how the IRS rate table converts the 25% limit, and not more than $72,000 for 2026.

Does a solo 401(k) need to file Form 5500-EZ?

Generally yes, once plan assets reach $250,000 or more at the end of the year, per the IRS one-participant 401(k) page. A plan with fewer assets may be exempt.

Bottom Line

For a sole proprietor, both plans share the employer-side rule of 20% of net earnings under a $72,000 cap for 2026. The solo 401(k) adds deferrals and catch-up contributions, with a year-end election and Form 5500-EZ from $250,000 in assets; the SEP keeps paperwork light and can be opened during an extension. Hiring changes both. Run the Publication 560 worksheet on your own Schedule C figure before comparing amounts.

Sources, all checked 2026-10-12: IRS One-Participant 401(k) Plans, Simplified Employee Pension Plan (SEP), SEP Contribution Limits, COLA Increases for Dollar Limitations, Publication 560 (2025).