You drive for Uber, DoorDash, Instacart or Amazon Flex. It's November, your first full year of 1099 income is almost over, and someone has told you to “open a Solo 401(k) before December 31” to shrink the tax bill. Short answer: you don't have to open anything by December 31. A sole proprietor with no employees can set up a new Solo 401(k) for 2026 as late as April 15, 2027, and a SEP IRA as late as October 15, 2027 with an extension. What decides between them is how much you want to put in. A SEP IRA tops out at about 20% of your net earnings. A Solo 401(k) lets you add an employee deferral of up to $24,500 on top, so it can shelter nearly everything a part-time driver earns.
One detail that drivers usually miss: both limits are worked out from your profit after the mileage deduction. Logging your miles makes the ceiling lower. That's still the better trade, and the example below shows why.
The 2026 numbers
| SEP IRA | Solo 401(k) | |
|---|---|---|
| Employee deferral | None | Up to $24,500 (plus $8,000 catch-up at 50+, or $11,250 at ages 60–63) |
| Employer contribution | 20% of net earnings | 20% of net earnings, on top of the deferral |
| Overall cap | $72,000 | $72,000 plus catch-up |
| Roth option | Depends on the provider | Roth deferrals, if the plan offers them (not deductible) |
| Paperwork | A short IRS form or a provider's version of it | A plan document, plus Form 5500-EZ once assets reach $250,000 |
“Net earnings” here has a specific meaning. It's your Schedule C profit (line 31) minus the deductible half of self-employment tax. The plan's 25% employer rate becomes 20% for you, because the contribution itself comes out of the base. That's why you'll see both numbers online. For a sole proprietor, 20% of net earnings is the right figure.
What actually has to happen by December 31
| Situation | Deadline for 2026 |
|---|---|
| New Solo 401(k), no employees | Adopt it by your return's due date. Pay the 2026 employee deferrals in before you file, no later than April 15, 2027 (extensions don't count). The employer part can wait until the extended due date. |
| Solo 401(k) you already had during 2026 | Elect your 2026 deferral by December 31, 2026. You can deposit it up to the return deadline. |
| SEP IRA | Set it up and fund it by the return due date including extensions: April 15, 2027, or October 15, 2027 with an extension. |
| Traditional or Roth IRA | April 15, 2027, $7,500 limit ($8,600 at 50+). |
The first row is newer than a lot of the advice online. Since the 2023 tax year, a sole proprietor can adopt a 401(k) after year end and still make first-year employee deferrals (IRS Publication 560). Not every provider supports a prior-year plan, and some need a few weeks to open an account. If you want 2026 deferrals in a new plan, ask the provider before you count on it, and don't leave it until the week you file.
Your mileage comes first: a worked example
Maya delivers full-time and grosses $42,000 in 2026. Her app logs 20,000 business miles: 10,000 from January to June at 72.5¢, and 10,000 from July to December at 76¢ (the 2026 rate changed mid-year). She has no other expenses, to keep the math clean.
| Gross 1099 income | $42,000 |
| Mileage deduction (10,000 × $0.725 + 10,000 × $0.76) | −$14,850 |
| Schedule C profit | $27,150 |
| Self-employment tax ($27,150 × 92.35% × 15.3%) | $3,836 |
| Deductible half of SE tax | −$1,918 |
| Net earnings for the retirement limit | $25,232 |
| SEP IRA maximum (20%) | $5,046 |
| Solo 401(k) maximum ($24,500 deferral + $366 employer) | $24,866 |
If Maya had no mileage log, her profit would be $42,000 and her SEP ceiling would rise to about $7,800. But her self-employment tax would rise from $3,836 to $5,934, which is about $2,100 more, before income tax. A retirement contribution never gets that back, because it lowers income tax only. The miles lower both. So claim every business mile first and then size the contribution from what's left. Don't under-report miles to make room for a bigger contribution.
The Solo 401(k) figure looks odd: why only $366 of employer money? The employee deferral comes out of the same $25,232. Once Maya defers $24,500, the employer piece is capped by what's left over (Publication 560's Deduction Worksheet for Self-Employed). In practice she would never put in $24,866 out of a $27,150 profit. She still has to pay $3,836 of SE tax and live on something. But if she defers $5,000, she can add the full $5,046 employer piece, for $10,046 in total. That's about twice what the SEP allows.
Tip: what a deduction is worth depends on your bracket. At a 12% federal bracket, each $1,000 you put into a traditional SEP or 401(k) saves $120 of federal income tax now, and you pay tax on it when you take it out. Many lower-bracket drivers choose Roth deferrals or a Roth IRA instead. That's a judgment call about your future tax rate, not a rule.
SEP or Solo 401(k): how to choose
- You want to save less than about 20% of net earnings. Either works. A SEP is simpler: no plan document and no 5500-EZ, and you can open it next spring.
- You want to save more than 20%. Only the Solo 401(k) gets you there, through the employee deferral. This is the usual case for part-time drivers with modest profit.
- You also have a W-2 job with a 401(k). The $24,500 deferral limit is per person across all plans. If you max it out at work, a Solo 401(k) adds nothing over a SEP for your gig income. If you defer less at work, the rest of the $24,500 can go to the Solo 401(k). More on W-2 plus side-gig taxes.
- You hire anyone other than your spouse. You no longer qualify for a Solo 401(k), and a SEP has to cover eligible employees too. That's rare for drivers, but it's the rule.
If neither fits: the plain IRA
A traditional or Roth IRA takes up to $7,500 for 2026 ($8,600 at 50 or older) until April 15, 2027, and needs no business paperwork. One catch: if you contribute to a SEP or Solo 401(k), the IRS treats you as covered by a workplace plan. Your traditional IRA deduction then phases out between $81,000 and $91,000 of modified AGI for a single filer.
Who this isn't for
- Drivers whose profit after miles is small or negative. No net earnings means no SEP or Solo 401(k) contribution. That can happen in a first year with low earnings and a lot of miles.
- Anyone who needs the cash for the tax bill. A contribution doesn't touch SE tax, and the fourth 2026 estimated payment is due January 15, 2027. Cover that first. How much to set aside from 1099 income walks through it.
- W-2 employees driving for an employer. These plans are for self-employment income.
- Drivers outside the US. UK, Canadian and Australian pension rules are different.
Where TaxMiles fits, and where it doesn't
We make TaxMiles, so weigh this accordingly.
- It gives you the first number. TaxMiles logs business miles automatically at 72.5¢ or 76¢ depending on the date. If you enter your gig income, the Estimated Taxes tool on the Taxes tab (Pro) shows year-to-date net earnings and self-employment tax. Note that the app's “Net earnings” line is your profit before the half-SE-tax step, which is step 1 of the worksheet above, not step 3.
- What it can't do. It doesn't calculate retirement contributions or include them in its tax estimate, and it doesn't open or connect to any retirement account. It isn't tax or investment advice.
- The free plan covers your first 40 business trips in total, not per month. Each driver needs their own subscription; there's no family plan.
For the other adjustments that sit next to a retirement contribution, see self-employed tax deductions and self-employment tax for gig drivers.
Frequently asked questions
Do I have to open a Solo 401(k) by December 31 to contribute for 2026?
Not if you're a sole proprietor with no employees and the plan is new. You can adopt it after the year ends, by your return's due date, and the 2026 employee deferrals must be paid into the plan before you file, no later than April 15, 2027 (extensions don't count for that part). If you already had a Solo 401(k) during 2026, your deferral election has to be made by December 31, 2026.
What is the last day to open and fund a SEP IRA for 2026?
Your return's due date including extensions: April 15, 2027, or October 15, 2027 if you file an extension. You can both set up the SEP and make the 2026 contribution up to that date.
Does a SEP or Solo 401(k) contribution lower self-employment tax?
No. You deduct your own contributions on Schedule 1 (line 16), so they lower income tax only. Self-employment tax is figured from your Schedule C profit, which the mileage deduction does lower.
I have a W-2 job with a 401(k). Can I still open a Solo 401(k) for my gig income?
Yes, but the $24,500 employee deferral limit for 2026 is shared by every plan you're in. If you've already deferred the maximum at work, the Solo 401(k) can only take the employer part, about 20% of your gig net earnings, which is the same amount a SEP IRA allows.
How much can a gig driver put in a SEP IRA for 2026?
Up to 20% of net earnings from self-employment, meaning Schedule C profit minus the deductible half of self-employment tax, and never more than $72,000. A driver with $27,150 of profit after mileage can put in about $5,046.
Get the profit number right first
Every contribution limit on this page starts from your profit after miles. TaxMiles logs each drive with date, distance and purpose, so the mileage line on Schedule C is complete before you size a contribution.
Get TaxMilesSources: IRS IR-2025-111 (Notice 2025-67), 2026 limits: $24,500 deferral, $8,000 and $11,250 catch-ups, $7,500 IRA plus $1,100 catch-up, $81,000–$91,000 single IRA deduction phase-out; IRS 401(k) and profit-sharing plan contribution limits ($72,000 overall limit, deferrals aggregated across plans); IRS Publication 560, Retirement Plans for Small Business (SEP setup and contribution deadlines, post-year-end 401(k) adoption by a sole proprietor, deferral election by year end, Rate Table for Self-Employed, Deduction Worksheet for Self-Employed, Schedule 1 line 16); IRS One-participant 401(k) plans (Form 5500-EZ at $250,000); IRS standard mileage rates (72.5¢ January 1–June 30, 2026; 76¢ July 1–December 31, 2026). Checked November 3, 2026.
This article is general information about US federal income tax, not tax, legal or investment advice. The worked example is hypothetical, assumes a single filer with no other expenses, and ignores the qualified business income deduction (which a retirement contribution can reduce) and state tax. Ask a tax preparer before you open a plan or file. TaxMiles is published by Gigabyte LLC, the company that wrote this article.