Retirement Savings for Guides: SEP and Solo 401(k)

The subguide who keeps coming back is the person who decides which retirement plan you should have.

That is not how the choice is usually presented. The comparison is normally framed around contribution limits, and on limits the two main options for a self-employed guide land in much the same place. Where they part company is what happens once somebody else works for you, and in this trade that arrives quietly, three seasons into a relationship nobody thought of as employment. What follows draws on the enacted text and on current IRS guidance, dates each figure to the year it governs, and stops short of telling anybody what to do with their own money. Related reading is collected at the running the business hub.

Why does a subguide change the answer?

Because a SEP has a participation rule and a uniformity rule, and together they are expensive.

Section 408(k)(2) of Title 26 requires the employer to contribute for each employee who has attained age 21, has performed service in at least three of the immediately preceding five years, and received at least a threshold amount of compensation for the year, with that enacted text kept by the House Office of the Law Revision Counsel.

Publication 560 gives that compensation threshold as 750 dollars for 2025 and 800 dollars for 2026, which almost any subguide clears in a single weekend.

Then section 408(k)(3)(C) provides that contributions are considered discriminatory unless they bear a uniform relationship to the compensation of each employee.

Uniform means the same percentage. A guide putting away a quarter of their own compensation must put away a quarter of each eligible employee's compensation too.

The publication makes the same point from the other end, noting that you may use less restrictive participation requirements than the statutory ones but not more restrictive ones.

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Why is three of five years the dangerous part?

Because seasonal work counts as service, and loyalty is the trigger.

The test asks whether the person performed service in three of the preceding five years, not whether they worked a full year, so three summers in a row satisfies it.

A guide who takes on a friend for a few weekends in year one has created nothing. The same arrangement in year three has produced an eligible employee.

Nothing about the relationship changes in the meantime, which is precisely why this arrives as a surprise rather than as a decision.

It is also the sort of thing a good subguide relationship produces by definition, since the person you want back every season is the person who becomes eligible.

Whether that person is an employee at all is the prior question, and it is not settled by what the arrangement is called.

That test is read against this trade in the classification piece.

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Does the solo plan avoid that?

Only for as long as it is genuinely solo, and the IRS says so plainly.

The one-participant 401(k) is not a separate species of plan. It is an ordinary 401(k) covering a business owner with no employees, or that person and their spouse, subject to the same rules as any other.

Its practical advantage is the absence of nondiscrimination testing, because there are no other employees who could be treated differently.

The IRS states the limit of that advantage in one sentence on its own page for these plans, last reviewed on 9 April 2026: the no-testing advantage vanishes if the employer hires employees.

So both routes have the same trigger. What differs is what happens on the other side of it, since one becomes a testing and administration problem and the other becomes a direct cost.

Neither is a reason to avoid hiring, and both are reasons to know which door you are walking through before you walk through it.

What that first hire changes generally is set out in the hiring piece.

Why is 25 percent not really 25 percent?

Because a self-employed person's compensation is defined circularly.

For a common-law employee the SEP limit is straightforward: the lesser of 25 percent of compensation or the defined contribution limit, which Publication 560 gives as 70,000 dollars for 2025 and 72,000 dollars for 2026.

For yourself, compensation means earned income, which the IRS defines as net earnings from self-employment after deducting both one half of your self-employment tax and the contributions made for yourself.

Subtracting the contribution from the base used to calculate the contribution is circular, and the effect is that a plan rate of 25 percent produces a materially smaller percentage of net earnings.

Publication 560 supplies a rate table and worksheets for exactly this computation, which is the honest answer to what your own number actually is.

The arithmetic above deliberately uses 20 percent rather than 25 for that reason, and even that is illustrative rather than a figure anybody should adopt.

The self-employment tax sitting underneath all of it is dealt with in the estimated taxes piece.

Which deadline suits a guide better?

They differ, and one of them is quietly stricter.

Publication 560 says that to deduct SEP contributions for a year you must make them by the due date of your return including extensions, which gives a guide until autumn of the following year if they extend.

The 401(k) side has a different shape. For 2023 and later years a sole proprietor with no employees can adopt a section 401(k) plan after the end of the tax year, provided the plan is adopted by the tax filing deadline without regard to extensions.

Those two phrases look similar and are not. One counts extensions and one expressly does not.

For a seasonal business that difference is real, because the months after a season ends are exactly when a guide finds out what kind of year it was and how much is spare.

The SEP's later deadline is genuinely its strongest feature for this trade, and it is rarely the feature anybody leads with.

How the cash actually behaves across those months is traced in the cash flow piece.

Do you have to contribute every year?

No, but you cannot treat a plan as a one-off either.

Section 1.401-1(b)(2) of the regulations states that the term plan implies a permanent as distinguished from a temporary program, a phrase that appears in the regulation as it stands at the Electronic Code of Federal Regulations.

It adds that abandonment for any reason other than business necessity within a few years of taking effect is evidence that the plan was never a bona fide programme, judged on all the surrounding facts.

The same paragraph is explicit about flexibility on the other side. For a profit-sharing plan it is not necessary that the employer contribute every year, or the same amount, or in the same ratio each year.

But it also says that merely making a single or occasional contribution does not establish a plan, and that there must be recurring and substantial contributions.

For a seasonal business that reads as permission to vary with the season and a prohibition on treating the plan as a switch flipped in one good year.

Which is the right shape for a trade where a blown-out spring can remove a month of income without warning.

Why do the two capacities matter so much?

Because a 401(k) lets you contribute twice and a SEP does not.

In a one-participant 401(k) the owner wears two hats, employee and employer, and contributions can be made in both capacities.

The employee side is an elective deferral of up to 100 percent of earned income, capped at the annual deferral limit. The employer side is a nonelective contribution on top of that.

A SEP has only the employer side, which means a guide with modest net earnings can often put more away through a 401(k) than through a SEP despite the two sharing an overall ceiling.

That difference is largest at the bottom of the income range and disappears at the top, where both run into the same defined contribution limit.

For a single-boat operation in an ordinary season, the bottom of the range is where the decision actually gets made, which inverts the usual advice.

The total for either is still bounded by the overall limit on annual additions, so the two-hat structure changes how you get there rather than how high you can go.

Does the plan cost anything to run?

Administratively, yes, and the difference is not trivial at small scale.

A SEP is set up through a formal written agreement, and Publication 560 notes that the requirement can be satisfied by adopting an IRS model using Form 5305-SEP.

Where there are eligible employees the employer must give each of them specified information when the plan is set up, an annual statement of contributions to their accounts, and notice of any excess contributions.

A 401(k) carries its own reporting, and Publication 560 covers the Form 5500 series including the version used by one-participant plans.

None of that is onerous for a solo operation, and all of it grows once other people are in the plan, which is the same pattern as everything else in this article.

The publication also describes credits for small employer plan startup costs, which is a genuine offset worth raising with a preparer rather than assuming the cost is all one way.

Where the rest of the annual paperwork sits is described in the bookkeeping piece.

What about the SIMPLE option?

It exists, and the salary reduction limit is meaningfully lower.

Publication 560 gives the SIMPLE salary reduction limit as 16,500 dollars for 2025 and 17,000 dollars for 2026, against elective deferral limits of 23,500 and 24,500 dollars for 401(k) plans.

The catch-up figures differ too, at generally 3,500 dollars for 2025 and 4,000 dollars for 2026 under a SIMPLE, against 7,500 and 8,000 dollars in a defined contribution plan.

A SIMPLE is aimed at employers with employees who want a lighter arrangement than a full 401(k), which is a real category but not usually a solo guide's category.

For an operation with several subguides on payroll it becomes worth a conversation, and for a single-boat guide it generally is not.

The publication also flags a higher salary reduction limit for participants in certain SIMPLE plans under section 117 of the SECURE 2.0 Act, which is the kind of detail that makes this a preparer question rather than an article question.

What an operation with several people on the water actually earns is examined in the multi-guide piece.

Can a spouse be in the plan?

Yes, and for a guiding household it is the most commonly missed capacity.

The one-participant 401(k) is described as covering a business owner with no employees, or that person and their spouse, so a spouse working in the business is inside the plan rather than outside it.

In a great many guiding operations the spouse is already doing the bookings, the invoicing and the correspondence without any of it being formalised.

Formalising it is not a paperwork exercise with a free contribution attached, since compensation has to be genuine and the work has to be real, and the same classification questions apply to a spouse as to anybody else.

But where the work is genuinely being done, the arrangement is worth examining rather than leaving as an accident of who happens to answer the phone.

It also interacts with the deferral limit, which the IRS notes applies by person rather than by plan for anybody participating in more than one.

Whose work is whose in a two-person operation is the same question that causes trouble elsewhere, examined in the partnership piece.

What if you already have a job with a plan?

Your deferral limit follows you, not the plan.

The IRS is direct about this for anybody running a one-participant plan while also employed elsewhere: limits on elective deferrals are by person, not by plan, and all deferrals made during the year count against the same figure.

That reaches a large share of this trade, because a great many guides carry a winter job or came into guiding from one and kept it.

The employer contribution side is not limited the same way, which is why the two capacities are worth separating rather than treating the whole thing as one allowance.

Somebody deferring the maximum through a winter employer still has room on the employer side of their own plan, subject to the overall defined contribution limit.

Getting that wrong in either direction is a correctable mistake rather than a catastrophe, and the IRS publishes correction guidance for exceeding the deferral limit.

The part-time configuration that produces this situation is examined in the hobby loss piece.

Where do the published figures actually live?

Not in the statute, which is worth knowing before you look it up.

Section 408(k)(2) sets its compensation threshold at 450 dollars and section 408(k)(3)(C) refers to the first 200,000 dollars of compensation.

Publication 560 gives the operative amounts as 750 dollars for 2025 and 800 dollars for 2026 for the eligibility threshold, and 350,000 dollars for 2025 and 360,000 dollars for 2026 for compensation counted.

Those are not contradictions. The base amounts sit in the statute and the indexing that moves them lives elsewhere, so the published figure and the enacted figure are simply doing different jobs.

The practical rule that follows is the same one that applies across this subject: read the statute for the rule and the current publication for the year's number, and never take a dollar amount from the older text.

That is the third time this pattern has appeared in this cluster, which is enough to treat it as the default rather than the exception.

Assets bought for the business raise the identical problem, and that one is unpicked in the depreciation piece.

How should the choice actually be made?

Decide against the hiring plan, not against this season.

Ask first whether you expect to have anybody working for you within five years, because that horizon is the one the participation rule uses.

If the answer is no, both routes work and the SEP's deadline including extensions is a genuine advantage in a trade with a late-arriving picture of the year.

If the answer is yes, work out the uniformity cost at the compensation you expect to pay before choosing, since the arithmetic is simple and the surprise is not.

Either way, check the classification of anybody already working for you, because the participation rule only reaches employees and that determination is separate.

Then take net earnings, the worksheets and the entity to a preparer once, and record the answer so it does not have to be rediscovered each spring.

Two neighbouring decisions usually land in the same conversation: which structure the business sits in, compared at the entity piece, and how a self-employed guide covers themselves, at the health cover piece.