Can I Have Both? Transitioning from a SEP IRA to a Solo 401k

Watch: Full webinar — Can I Have Both? Transitioning from a SEP IRA to a Solo 401k with My Solo 401k Financial

If you’re self-employed and currently holding a SEP IRA, you’ve probably wondered whether you can also open a Solo 401k — and the short answer is yes. As long as you are self-employed with no non-owner, non-spouse full-time W-2 employees, you are eligible to maintain both accounts simultaneously. However, the more important question is: why would you want to?

In this webinar, the team at My Solo 401k Financial walks through the core differences between a SEP IRA and a Solo 401k, explains why the Solo 401k is the superior wealth-building vehicle for solopreneurs, and outlines the step-by-step process for transitioning your existing SEP IRA funds into a Solo 401k.

Can You Have Both a SEP IRA and a Solo 401k?

Yes — having an existing SEP IRA will not prevent you from establishing a Solo 401k. The eligibility requirements for a Solo 401k are straightforward: you must be self-employed with earned self-employment income and no non-owner, non-spouse full-time W-2 employees in any business owned by you or your spouse.

✅ Example:

A freelance graphic designer currently holding a SEP IRA at Fidelity can open a Solo 401k with My Solo 401k Financial today. Both accounts can coexist. However, once the Solo 401k is established and funded, the SEP IRA offers no additional contribution advantages — making consolidation the logical next step.

That said, there is no benefit to maintaining both accounts from a contribution perspective. Contributions to a SEP IRA are employer contributions — the exact same contribution type you can make to a Solo 401k. Having both does not allow you to “double dip” or exceed the annual overall limit.

Why the Solo 401k Is the Superior Retirement Vehicle for Solopreneurs

The Solo 401k offers a dramatically wider set of contribution options and retirement planning tools compared to the SEP IRA. Below is a side-by-side comparison of the two plans:

Feature	SEP IRA	Solo 401k
Employer Contributions	✅ Yes	✅ Yes
Employee (Elective Deferral) Contributions	❌ No	✅ Yes — up to $24,500 (2026)
Roth Employee Contributions	❌ No	✅ Yes
Mega Backdoor Roth Contributions	❌ No	✅ Yes (with qualifying plan)
Participant Loan	❌ No	✅ Yes — up to $50,000
SECURE Act Tax Credits	❌ No	✅ Up to $1,500
Catch-Up Contributions (Age 50+)	❌ No	✅ $8,000 if age 50+ OR $11,250 if age 60-63
Overall Limit (2026)	$72,000	$72,000 (+ $8,000 Catch-Up OR $11,250 Super Catch-Up)

Solo 401k Contribution Advantages: Hitting the Limit with Less Income

One of the most compelling reasons to transition from a SEP IRA to a Solo 401k is the ability to reach the overall annual contribution limit with significantly less self-employment income.

SEP IRA: Employer-Only Contributions Require High Income

A SEP IRA only allows employer contributions, which are calculated as a percentage of self-employment compensation. To hit the 2026 overall limit of $72,000 via a SEP IRA while operating as a sole proprietor, you would need over $360,000 in self-employment income.

Solo 401k: Multiple Contribution Buckets, Less Income Required

The Solo 401k allows solopreneurs to fill multiple contribution “buckets” — employee deferrals, employer contributions, and voluntary after-tax contributions (for the Mega Backdoor Roth strategy). Employee contributions can be made at 100% of self-employment compensation, dollar for dollar, up to $24,500 for 2026.

✅ Example — Mega Backdoor Roth Power:

With only $72,000 in self-employment income, a solopreneur can contribute the entire amount as a voluntary after-tax contribution using the Mega Backdoor Roth strategy, immediately reaching the $72,000 overall limit.

Solo 401k Participant Loan: A Feature SEP IRAs Simply Don’t Offer

Unlike any type of IRA — including a SEP IRA — a Solo 401k may allow participant loans. This means you can withdraw funds from your Solo 401k account and use them for any purpose whatsoever — personal or business — without triggering taxes or penalties, provided the withdrawal is properly documented as a loan.

Solo 401k Loan Terms

Loan Parameter	Details
Maximum Loan Amount	50% of account balance, not to exceed $50,000
Repayment Schedule	Monthly or quarterly equal payments of principal and interest
Repayment Term	Up to 5 years
Interest Rate	Prime rate + 1% or CD rate + 2%
Loan Documentation	Prepared by My Solo 401k Financial at no additional charge

⚠️ Important:

You cannot take a loan from any type of IRA — including a SEP IRA, Traditional IRA, or Roth IRA. The participant loan is a feature exclusive to 401k-type plans, making the Solo 401k a uniquely flexible tool for self-employed individuals who may need access to their retirement funds in an emergency or for business purposes.

Up to $1,500 in SECURE Act Tax Credits

The SECURE Act created a powerful tax credit for solopreneurs who establish a new Solo 401k plan (or upgrade an existing Solo 401k plan) that includes an automatic enrollment feature. My Solo 401k Financial was among the first providers to offer a Solo 401k plan structured to enable clients to claim this credit.

ℹ️ How the SECURE Act Tax Credit Works:

$500 per year for the first three years of a new plan
$1,500 total over three years
A tax credit — not a deduction — meaning a dollar-for-dollar reduction in your tax liability
Classified as a general business credit
This credit will more than cover My Solo 401k Financial’s fees for the first seven years

✅ Fee Context Example:

My Solo 401k Financial charges $650 to establish a new Solo 401k (which includes the $525 establishment fee plus the first year’s $125 annual fee). After that, the annual fee is $125 per year. Even totaling all fees over seven years, the amount comes to less than $1,500 — meaning the SECURE Act tax credit alone can offset the entire cost of maintaining the plan for the better part of a decade.

How to Transition from a SEP IRA to a Solo 401k: Step-by-Step

Transitioning your retirement savings from a SEP IRA to a Solo 401k is a straightforward process. Here’s exactly how it works with My Solo 401k Financial:

Step	Action	Details
1	Verify Eligibility	Confirm you have earned self-employment income and no non-owner, non-spouse full-time W-2 employees
2	Complete the Application	10 simple questions on mysolo401k.net — takes just a minute
3	Receive Plan Documents	IRS-approved plan documents are prepared same business day and delivered via secure portal
4	EIN Obtained for the Plan	A separate EIN is obtained specifically for the Solo 401k trust — distinct from your business EIN
5	Open Account at Brokerage of Choice	Can be at Fidelity, Schwab, or another institution — even where your SEP IRA is currently held
6	Roll Over Pre-Tax SEP IRA Funds	My Solo 401k Financial prepares transfer paperwork for a non-taxable direct rollover. Electronic transfer if same brokerage.

⚠️ Important — Roth Rollover Rule:

If your SEP IRA holds Roth (after-tax) funds (possible thanks to SECURE Act 2.0 provisions), be aware that Roth IRA funds cannot be rolled over to a Roth Solo 401k. Only pre-tax dollars from a SEP IRA can be rolled over to a Solo 401k as a non-taxable direct rollover.

Ready to Transition from a SEP IRA to a Solo 401k?

Whether you’re looking to unlock the Mega Backdoor Roth, access a participant loan, or claim your SECURE Act tax credits, My Solo 401k Financial can help you set up the right Solo 401k plan for your business — with IRS-approved documents prepared the same business day.

Next Steps:
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Remember: This information is provided for educational purposes only. Always consult with your qualified tax, legal, and investment professionals before making decisions with your retirement funds.