Updated July 28, 2026. Quick answer: There is a crossover, but it is a formula, not a number, and it moves every year because every input is indexed. It also differs by entity: a sole proprietor’s employer rate is effectively 20% of net earnings, an S-corp owner’s is 25% of W-2 wages, so the two reach the ceiling at different incomes. And for anyone 50 or over it does not arrive at all.
The formula
| Point | Formula |
|---|---|
| The advantage begins to shrink | (annual additions limit − elective deferral limit) ÷ your effective employer rate |
| The advantage reaches zero | annual additions limit ÷ your effective employer rate |
Your effective employer rate is 0.20 against net earnings if you are a sole proprietor or partner, and 0.25 against W-2 wages if you are an S-corp owner-employee — and the difference in the base matters as much as the difference in the rate.
Both inputs are indexed, so any specific crossover income you read is out of date the following January. Take the current year’s annual additions limit and elective deferral limit from the IRS cost-of-living notice and run the two lines above. That is why no figure is printed here.
The compensation cap sits above all of it
Separately, IRC §401(a)(17) caps the compensation that can be counted at all. Above that, extra income does not increase any contribution under either plan — so the practical ceiling arrives at whichever comes first, the annual additions limit or the compensation cap.
And for a catch-up-eligible owner the crossover never happens. Catch-up contributions sit outside the annual additions limit under §414(v)(3), and a SEP cannot accept them at all. The solo 401(k) stays ahead at every income.
Every dollar limit in this area is indexed and changes annually. The figures printed in the Code itself — $40,000 for the defined-contribution limit, $160,000 for the defined-benefit limit, $15,000 for elective deferrals — are 2001 and 2005 base amounts that will never be updated in the statute; IRC §415(d) and §402(g)(4) do the adjusting. Get the current year’s figures from the IRS cost-of-living notice for that year rather than from any article, including this one. Nothing on this page states a dollar amount for that reason.
Sources
IRC §404(a)(3)(A) and §404(h)(1)(C) (the 25% deduction limit); §404(n) (elective deferrals excluded from it); §415(c) and §415(d) (annual additions, and indexing); §401(c)(2) and §1402(a) (earned income); IRS Publication 560, Retirement Plans for Small Business, current edition (the Rate Table for Self-Employed and the Deduction Worksheet); IRS Retirement plan FAQs regarding contributions — S corporation.
This states what the cited authority says. It is not tax advice, and retirement-plan design turns on facts about your business and your other entities that no page can see. Every dollar limit referenced here is indexed and changes annually.