If you’re self-employed and currently have a SEP IRA, you might be wondering if it’s possible — or even beneficial — to roll those funds into a Solo 401(k). The short answer is yes — and doing so can open up powerful advantages for your retirement and tax strategy.
Let’s unpack how this works and why thousands of self-employed individuals, consultants, and small business owners choose to make the move.
Why Consider Moving from a SEP IRA to a Solo 401(k)?
A SEP IRA is simple to establish and works well for sole proprietors and small businesses with few or no employees. However, it comes with several limitations that can restrict your long-term wealth-building potential.
A Solo 401(k), on the other hand, offers greater flexibility, higher contribution limits, and advanced tax-saving strategies such as the Mega Backdoor Roth and the Auto Contribution Tax Credit.
Here’s how the two plans stack up:
| Feature | SEP IRA | Solo 401(k) |
|---|---|---|
| Roth Contributions | ✅ Allowed | ✅ Allowed (Employee + Employer Roth) |
| Mega Backdoor Roth | ❌ Not allowed | ✅ Allowed |
| Participant Loan | ❌ Not allowed | ✅ Borrow up to $50,000 |
| Auto Contribution Tax Credit | ❌ Not available | ✅ Up to $1,500 over 3 years |
| Contribution Flexibility | Limited | Very flexible, supports multiple sources |
How to Roll Over a SEP IRA into a Solo 401(k)
The good news: You can transfer your SEP IRA to a Solo 401(k) at any time. Unlike a SIMPLE IRA, there’s no two-year restriction on moving funds from a SEP IRA.
If your SEP IRA consists of traditional (pre-tax) funds, the transfer can be done as a non-taxable direct rollover. That means your SEP IRA custodian sends the funds directly to your Solo 401(k) plan — no taxes, no penalties.
Once the funds arrive in the Solo 401(k), they become subject to Solo 401(k) rules — not SEP IRA rules — allowing you to take advantage of all the enhanced features.
The Major Benefits of Moving to a Solo 401(k)
1. Access the Mega Backdoor Roth Strategy
SEP IRAs don’t allow after-tax contributions, which means no Mega Backdoor Roth.
A Solo 401(k) allows you to make voluntary after-tax contributions and then convert them to the Roth Solo 401(k) bucket — potentially allowing tax-free growth on tens of thousands of dollars each year.
2. Claim the $1,500 Auto Contribution Tax Credit
Starting in 2024, the SECURE Act 2.0 introduced a dollar-for-dollar credit of $500 per year for three years (up to $1,500 total) for eligible small businesses that establish a 401(k) plan.
You don’t have to make contributions to qualify — simply having the Solo 401(k) in place with the proper schedules allows you to claim it by filing IRS Form 8881 with your business tax return.
At My Solo 401k Financial, our plan documents include the required language and schedules to ensure you’re eligible.
3. Borrow from Your Solo 401(k)
One of the biggest advantages of a Solo 401(k) is the ability to take a participant loan.
You can borrow up to 50% of your account balance (maximum $50,000) and use the funds for any purpose — no credit check required.
You’ll repay yourself, with interest, over up to five years (or up to 30 years if the loan is used to purchase your primary residence).
4. Higher Contribution Limits
For tax year 2025, the Solo 401(k) contribution limit is $70,000, or $77,500 if you’re age 50 or older.
If you’re between ages 60–63, the new “super catch-up” provision allows you to contribute up to $81,250.
Example: Using the Mega Backdoor Roth with $70,000 W-2 Income
If your business is taxed as an S corporation and you pay yourself $70,000 in W-2 wages, you can contribute that entire amount as a voluntary after-tax contribution to your Solo 401(k).
Then, convert it immediately to the Roth Solo 401(k) bucket — fully maximizing your Mega Backdoor Roth for 2025.
If you’re age 50+, you can also make your catch-up contribution directly to the Roth or pre-tax portion of the Solo 401(k).
Quick Recap: Why the Solo 401(k) Wins
✅ Higher contribution limits
✅ Access to Roth and after-tax options
✅ Ability to take participant loans
✅ Claim up to $1,500 in tax credits
✅ Full control over investments — real estate, private equity, crypto, and more
