Solo 401(k) or SEP IRA: which is better for a CRE broker?
For most S Corp brokers, the solo 401(k) wins. Both plans allow the same employer contribution ā generally 25% of your W-2 salary ā but the solo 401(k) adds an employee deferral on top ($24,500 in 2026, plus a catch-up if you're 50 or older). At the moderate salaries most S Corp brokers pay themselves, that stacking lets you shelter roughly twice as much as a SEP. The SEP's main advantages are simplicity and the ability to open one after year-end.
The structural difference in one sentence
A SEP IRA has one lever ā an employer contribution of up to 25% of compensation ā while a solo 401(k) has two: the same employer contribution plus an employee deferral. For an S Corp broker, "compensation" means your W-2 salary, not your total profit, and that's what makes the second lever so valuable.
Why the S Corp salary changes the math
Most S Corp brokers deliberately keep their salary at a reasonable-but-not-extravagant level, because salary is what payroll tax applies to. But a lower salary also shrinks the 25%-of-compensation employer contribution. The solo 401(k)'s employee deferral doesn't care about that percentage ā you can defer the full limit from even a moderate salary, then stack the employer piece on top.
Illustrative only, using 2026 limits. The overall cap on combined contributions is $72,000 for 2026 (more with age-50+ catch-up). Contribution room, deductibility, and the Roth/pre-tax mix depend on your salary, age, and plan design. Limits adjust annually for inflation.
What else the solo 401(k) can do
- Roth deferrals. Most solo 401(k) plans allow Roth employee contributions ā useful in lower-income years or as a tax-diversification play. SEP IRAs are traditionally pre-tax only (Roth SEP contributions exist in law but provider support remains spotty).
- Catch-up contributions. Age 50+ adds a meaningful catch-up ($8,000 in 2026). Note a recent-law wrinkle: higher earners ā those with prior-year FICA wages above a threshold ($150,000 range) ā must make catch-up contributions as Roth.
- Plan loans. Solo 401(k)s can permit loans up to legal limits; IRAs never can. Not a reason to choose the plan, but occasionally useful for a broker bridging a slow quarter.
- Bigger backdoor options. A solo 401(k) that accepts after-tax contributions can enable the "mega backdoor Roth" strategy ā advanced, but only available on the 401(k) side.
Where the SEP still wins
Two situations. First, the deadline: a SEP can be opened and funded up to your tax filing deadline including extensions ā so if it's March and you're staring at last year's tax bill, the SEP is the only retroactive option (solo 401(k) employee deferrals generally require the plan to exist, and elections to be made, by December 31). Second, pure simplicity: no plan document maintenance and no Form 5500-EZ filing once assets exceed $250,000, which the solo 401(k) eventually requires.
The decision in practice
If you're planning ahead ā which is the whole point ā the solo 401(k) is usually the better vehicle for an S Corp broker: more room, Roth flexibility, and the same employer math. The right contribution level, the pre-tax/Roth split, and how the plan fits your broader picture is retirement planning, not just tax planning ā that's the work we do in Financial Planning & Wealth Management.
