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The short answer
Both plans let a US freelancer shelter self-employment earnings, including fees from Nigerian clients reported on Schedule C. For 2026 the IRS caps total contributions to either at $72,000; a SEP is employer contributions only, up to 25% of compensation figured on net earnings, while a Solo 401(k) adds employee deferrals of up to $24,500 (plus $8,000 catch-up at 50 or over, or $11,250 at 60 to 63), so it usually allows more at moderate incomes.
Income from a client in Lagos counts the same as income from a client in Los Angeles once it is on your Schedule C. That means a freelancer with Nigerian clients can use the same two self-employed retirement plans as anyone else. The choice turns on how much you earn, how much you want to put away, whether you will ever hire, and how much paperwork you will accept. This is information, not investment or tax advice.
The 2026 numbers
| Limit | 2026 | 2025 | Source |
|---|---|---|---|
| Overall defined contribution limit (415(c)) | $72,000 | $70,000 | IRS COLA table, reviewed 24 Aug 2026 |
| Elective deferral (Solo 401(k) employee part) | $24,500 | $23,500 | IRS COLA table; IR-2025-111 |
| Catch-up, age 50 or over | $8,000 | $7,500 | IR-2025-111 |
| Catch-up, age 60 to 63 | $11,250 | $11,250 | IR-2025-111 |
| Compensation counted | $360,000 | $350,000 | IRS COLA table |
| SEP minimum compensation for coverage | $800 | $750 | IRS COLA table |
How each plan works
SEP IRA
- Only the employer contributes; as a sole proprietor you are the employer. The IRS SEP page says employees cannot make their own contributions.
- Set it up with the IRS model Form 5305-SEP or a provider's document; Form 5305-SEP is not filed with the IRS.
- You can establish a SEP for a year up to the due date of your business return for that year, including extensions.
- Generally no Form 5500 filing.
- If you hire, eligible employees (at least 21, worked for you in 3 of the last 5 years, paid at least the minimum) must get the same contribution rate as you.
Solo (one-participant) 401(k)
- Covers a business owner with no employees, or the owner and spouse, per the IRS one-participant 401(k) page.
- Two parts: employee deferrals up to the deferral limit, plus employer contributions of up to 25% of compensation.
- For self-employed people, compensation for the employer part is net self-employment earnings minus half of self-employment tax and minus your own contributions; Publication 560 has the worksheets.
- Form 5500-EZ is generally required once plan assets reach $250,000 at year-end.
Worked comparison (illustration only)
Assume net self-employment earnings, after half of self-employment tax, of $60,000 for 2026, age 40. For a sole proprietor, the employer contribution works out at about 20% of that figure, because the 25% rate is applied to compensation after the contribution itself is deducted.
- SEP IRA
- About 20% x $60,000 = about $12,000
- Solo 401(k)
- Employee deferral $24,500 + employer part about $12,000 = about $36,500, within the $72,000 cap
- Difference
- About $24,500 more sheltered in the Solo 401(k) at this income
- At $300,000 net earnings
- Both reach the $72,000 cap, so the difference disappears and the SEP's simplicity counts for more
Check the exact employer figure with the Publication 560 worksheet or your preparer; the 20% shortcut is an approximation of the self-employed rate.
Points specific to Nigerian income
- Fees from Nigerian clients count as earned income for these plans once they are self-employment earnings on Schedule C, converted to dollars. Keep the conversion consistent; see converting naira invoices for Schedule C.
- If a Nigerian client withholds tax, your earnings are still the gross fee; the withheld amount is a possible foreign tax credit, covered in Nigerian withholding tax on fees paid to a US freelancer.
- Contributions must go into the US plan from your own funds. Naira earned in Nigeria needs converting to dollars first.
Which suits whom
- Lower or middle income, want to save as much as possible: Solo 401(k), because the deferral is on top of the employer part.
- High income, want least paperwork: SEP, because both reach the cap.
- Decided late in the year: a SEP can be opened up to the return due date including extensions; for a 401(k), check the provider's deadline for establishing the plan and making the deferral election, as the IRS one-participant page does not give one.
- Plan to hire staff soon: compare the cost of covering employees under each plan before choosing.
Costs and paperwork side by side
| SEP IRA | Solo 401(k) | |
|---|---|---|
| Set-up document | Form 5305-SEP or provider's document; not filed with the IRS | Provider's plan document |
| Annual IRS filing | Generally none | Form 5500-EZ once assets reach $250,000 at year-end |
| Who can contribute | Employer only | You as employee and as employer |
| Roth option | The IRS SEP page says a SEP may accept Roth contributions if the employer chooses | Check the provider's plan; the IRS page does not cover it |
| If you hire | Eligible employees must get the same rate | No longer a one-participant plan; rules for a full 401(k) apply |
Provider fees vary and are not set by the IRS. Compare the account, investment and administration charges before you choose; on small balances they can matter as much as the limit.
Where Pryme fits
Pryme is not a retirement plan provider. It helps at the step before: client income in naira and dollars lands in a Pryme Business Account in its own currency, and when you want dollars for a contribution, Swap shows the rate and fee before you approve. The Finance agent can prepare a year-to-date earnings figure so the contribution is worked out from real numbers.
Questions people ask
What is the 2026 Solo 401(k) limit?
Total contributions cannot exceed $72,000, excluding catch-up. Employee deferrals are capped at $24,500, with $8,000 catch-up at 50 or over and $11,250 at 60 to 63 (IRS, Nov 2025 and Aug 2026).
Can income from Nigerian clients go into a SEP IRA?
Yes, once it is self-employment earnings on your US return. The contribution is based on net earnings, not on where clients are.
When is the SEP deadline?
The IRS SEP page says a SEP can be established up to the due date of the business return, including extensions.
Do I have to file anything for a Solo 401(k)?
Generally Form 5500-EZ once plan assets are $250,000 or more at year-end, per the IRS one-participant 401(k) page.
Sources
- IRS: COLA increases for dollar limitations on benefits and contributions (reviewed 24 Aug 2026) · accessed Oct 2026
- IRS IR-2025-111: 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500 (13 Nov 2025) · accessed Oct 2026
- IRS: One-participant 401(k) plans (reviewed 9 Apr 2026) · accessed Oct 2026
- IRS: Simplified Employee Pension plan (SEP) (reviewed 7 May 2026) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.