Most tax moves for 2025 closed on December 31. One category did not, and it is worth ten to twenty thousand dollars of deduction to a profitable one-person business that has not touched it yet.
If you filed a 2025 extension, you have until October 15, 2026 to fund a SEP-IRA or a Solo 401(k) for that same 2025 return, and depending on what you already did in December, one door may still be open that you have not walked through.
Tax Disclaimer: This article provides educational information based on IRS Publication 560 and the IRS 2025 contribution limits, and is not tax advice. Consult a certified CPA or tax professional for individual advice.
Which Door You Have Depends on One December Decision
Everything below turns on a single question: did you elect a Solo 401(k) employee deferral for 2025, in writing, by December 31, 2025?
If yes: both the employee deferral and the employer contribution are still unfunded money on the table. The election deadline passed; the funding deadline has not. You can write the checks any time up to October 15, 2026, for a plan that, on your December 31 balance sheet, may not have held a dollar.
If no, and you never had a Solo 401(k) at all: the deferral is gone for 2025. The IRS “elected by the end of the tax year” rule has no extension-day exception (IRS Publication 560). But a sole proprietor with no common-law employees can still adopt a brand-new one-participant 401(k) plan for 2025 right now, as late as the extended filing deadline, and fund the employer side of it. You lose the deferral rung; you keep the employer rung.
Either way, a SEP-IRA is the fully forgiving option. You can “set up the SEP plan for a year as late as the due date (including extensions) of your income tax return for that year” (IRS) and fund the whole thing in the same sitting. No December decision required at all.
The 2025 Numbers, Not the 2026 Ones
This is a 2025 return, so it runs on 2025 limits, a year behind the figures on our Solo 401(k) vs SEP-IRA comparison, which covers the 2026 tax year currently in progress.
| 2025 limit (this return) | 2026 limit (next April’s return) | |
|---|---|---|
| Solo 401(k) employee deferral | $23,500 | $24,500 |
| Catch-up, age 50–59 and 64+ | $7,500 | $8,000 |
| Catch-up, age 60–63 | $11,250 | $11,250 |
| Combined ceiling, §415(c) | $70,000 | $72,000 |
| SEP-IRA maximum | $70,000 | $72,000 |
Using the 2026 figures on a 2025 contribution overstates what you can put in by exactly the gap in that table. The IRS will not catch an overstatement in your favor; your custodian’s 5498 filing will, months later, when it reports what you actually contributed.
What the Gap Is Worth, Concretely
Take the same $100,000 of 2025 net profit used in our 2026 comparison piece and run it through the 2025 ceiling instead. Net earnings for SE tax purposes come to $92,350, half the SE tax deducted brings the base to roughly $92,935, and the employer-side SEP math is unchanged by the year: 20% of $92,935 is $18,587.
The Solo 401(k) is where 2025 differs. Employee deferral of $23,500 (2025) plus $18,587 employer equals $42,087. That is one thousand dollars short of the $43,087 a 2026 filer gets with the $24,500 limit, on identical income. Small on its own; the point is that the 2025 ceiling is genuinely a different number, not last year’s figure rounded.
Neither figure is close to the $70,000 combined 415(c) ceiling for 2025. At that income level, the ceiling is not the constraint for either plan. Same conclusion as the 2026 comparison, just at a lower dollar level throughout.
Fund It, Then Recheck September’s Estimate
A SEP or Solo 401(k) contribution reduces your income tax, not your self-employment tax — it is deducted on Schedule 1, not Schedule C, so the SE tax base is untouched (IRS Publication 560). If this deduction is large enough to move what you owe on the return itself, it is worth recomputing before you send the October 15 payment, not after. Size both the deduction and the balance due in the Solo 401(k) and SEP calculator and the 1099 tax estimator. Note both currently model the 2026 limits from the table above for a plan you would fund today for the current tax year, so run your 2025 contribution by hand against the 2025 column first.
The Bottom Line
December 31 already closed one door for anyone who did not use it: the Solo 401(k) deferral election. It did not close the rest.
- Already elected a Solo 401(k) deferral for 2025? Fund both the deferral and the employer contribution by October 15, 2026. The money is still yours to place.
- Never had a Solo 401(k)? You can still adopt a new one-participant plan today and fund the employer side alone, or skip the adoption paperwork entirely and open a SEP-IRA, which allows both setup and funding on the same visit.
- Either way, use 2025’s limits, not 2026’s. The table above is the one that applies to this return.
The deduction is real money against a bill that is otherwise due in seven weeks. The only mistake left to make is assuming the window already closed.
One further reason to size the contribution rather than skip it: an above-the-line deduction lowers the adjusted gross income that the premium tax credit is measured against, and the 2027 schedule ends at 400 percent of the federal poverty line.
