Solo 401k vs SEP IRA for Commercial Real Estate Brokers: Which One Actually Wins?

Most brokers I meet are using a SEP IRA their CPA helped set up years ago, or they have nothing at all. The SEP IRA is easy to establish, easy to contribute to, and requires almost no ongoing maintenance. Sounds great.

But for brokers operating through an S corp at most reasonable income levels, the Solo 401k puts significantly more money away at a lower W-2 salary. The difference compounds over a career.

How Each One Works

A SEP IRA allows contributions equal to 25% of W-2 wages from the S corp, up to a maximum of $70,000 in 2025. The contributions come entirely from the “employer” side. Simple structure, no annual filing requirements, minimal administration.

A Solo 401k splits contributions into two buckets. The “employee” deferral allows you to put in up to $23,500 in 2025 ($31,000 if you're 50 or older), separate from the “employer” match. The employer contribution adds up to 25% of W-2 wages on top of that. Total contributions are still capped at $70,000, but how you reach that cap is different.

While you are effectively self-employed as a broker, when I say the “employer” contribution, I mean the funds contributed come straight from the business. As for the “employee” contributions, those come from your paycheck out of payroll. Yes, you are both the “employee” and the “employer” in a self-employed S Corp business structure, but the contribution types must be accounted for separately.

Why the Solo 401k Usually Wins

The employee deferral is the key. With a SEP IRA, you need a W-2 of $280,000 to max out at $70,000. Most S Corp brokers aren't running W-2s that high.

With a Solo 401k, a 52-year-old broker on a $80,000 W-2 can contribute $31,000 in employee deferrals plus $20,000 in employer match, for a total of $51,000. Under the SEP IRA, the same $80,000 W-2 produces a maximum contribution of $20,000. Same salary. Same income. $31,000 more sheltered.

At a hypothetical 32% combined federal and state marginal rate, that difference saves over $9,900 in taxes in a single year. Over ten years of compounding, that’s a potential six-figure difference in taxes paid over that decade.

The numbers above are illustrative. Your actual contribution maximum depends on your W-2 salary, your age, your net S corp income, and the year. Run your specific numbers before deciding.

The Roth Option

Both the Solo 401k & SEP IRA can now include a Roth component. Employee deferrals can go in after-tax, grow tax-free, and come out tax-free in retirement. A SEP IRA has only recently added the Roth option.

For brokers in strong income years who expect to have meaningful retirement income, the ability to build Roth balances through a Solo 401k matters. It gives you tax-free income to draw from in retirement rather than always triggering ordinary income.

Depending on where you open your Solo 401k account, you may also be able to make “Mega Backdoor Roth Contributions” to finish filling up your solo 401k limits. So, taking from our previous example where the broker made $51,000 total of tax-deductible contributions, he would be able to make an extra $19,000 of “after-tax” contributions that he immediately converts over to his Roth Solo 401k. No taxes will be owed on that transfer since the funds contributed were after tax, and they didn’t have any growth to be taxed yet. Always consult your financial advisor and tax pro before executing strategies such as this. If done incorrectly, you could be subject to taxes or penalties.

What the Solo 401k Costs You in Complexity

A Solo 401k requires a plan document. Once plan assets exceed $250,000, you file Form 5500-EZ annually. It's not a heavy administrative burden, but it is more than the SEP IRA.

Also important to note: a Solo 401k is only available if your S corp has no W-2 employees other than your spouse. If you have employees, you need a different plan structure entirely.

When the SEP IRA Is Still Reasonable

If your W-2 is high enough that both plans let you hit the same contribution level, the complexity advantage of the SEP IRA becomes more relevant. At a $280,000 W-2, both plans max at $70,000 and the comparison shifts.

For brokers earlier in their career with lower net income, the SEP IRA's simplicity may outweigh the contribution difference. But most established brokers I work with are better served by the Solo 401k.

I'm a fee-only CFP in Pleasant Grove, Utah. I work specifically with commercial real estate brokers on retirement account strategy, income planning, and tax planning with your CPA. Book a free intro call here.