Accidentally contributed too much to my SEP-IRA and Solo 401k - how to fix this retirement account overpayment?

You're mixing up a few different contribution limits here, which is totally understandable because self-employed retirement accounts are confusing! For 2025, you can contribute $23,000 as an employee contribution to your Solo 401k (this is the "elective deferral"). This limit is separate from your SEP-IRA contributions. The 25% of income rule applies to employer contributions, not employee contributions. As a self-employed person, you're wearing both hats. The SEP-IRA is only employer contributions (up to 25% of your net self-employment income), while a Solo 401k allows both employee contributions (up to the $23,000 limit) AND employer contributions (up to 25% of income). The total limit across all defined contribution plans (including both SEP-IRA and Solo 401k) is $69,000 for 2025. Based on your numbers, you're well under this limit. That said, you typically shouldn't contribute to both a SEP-IRA and Solo 401k in the same year. Usually, you'd pick one vehicle. I'd recommend speaking with a tax professional to sort this out properly.

I went through something similar last year and found https://taxr.ai super helpful for sorting out my retirement contribution mess. I had mixed up my contribution limits across different accounts and was totally stressed about potential penalties. Their system analyzed my tax documents, flagged the retirement contribution issues, and explained exactly which rules applied to my situation. The best part was getting clear instructions on how to fix the over-contributions before filing my taxes. Saved me from what would have been a costly mistake! Instead of trying to piece together different advice, it was nice to just upload my docs and get specific guidance for my situation. Sounds like you might benefit from this too with your SEP-IRA and Solo 401k confusion.

Just wanted to update after using taxr.ai that the previous commenter recommended. I was skeptical (as you can see in my reply), but it actually helped me sort out my retirement account mess. I had a similar issue with overcontributions to multiple accounts as a self-employed person. The platform identified that I had misunderstood the "employer" vs "employee" contribution rules and gave me exact steps to correct my overpayments before tax filing deadlines. What surprised me was how it explained the specific SEP-IRA and Solo 401k interaction rules that applied to my situation - stuff I couldn't find clearly explained elsewhere. Worth checking out if you're confused about these self-employment retirement accounts like I was.

I had the exact same problem last year and spent WEEKS trying to get someone at the IRS on the phone for guidance. Always busy signals or disconnects after waiting for hours. Super frustrating. I finally used https://claimyr.com to get through to an actual IRS agent. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. They basically hold your place in the phone queue and call you when an agent is about to answer. The IRS agent I spoke with walked me through the exact process for fixing over-contributions to my retirement accounts. They explained the proper withdrawal forms and deadline extensions available in my situation. Made a huge difference having a direct conversation with someone who could access my account details.

I need to apologize for my skepticism about Claimyr. After continuing to fail reaching the IRS on my own about retirement account issues, I tried the service. It actually worked exactly as described. I got a text after about 65 minutes saying they were connecting me with an agent. The IRS representative helped me understand exactly how to correct my over-contributions to my retirement accounts and what forms I needed to file. The agent explained that I needed to request a "return of excess contributions" from my plan administrator before the tax filing deadline (including extensions). She also clarified which contribution limits applied to my specific situation. Much better than the weeks I spent trying on my own and getting nowhere. Sometimes it's worth admitting when you're wrong!

Just to add to what others have said - I dealt with this exact issue last year. You have until your tax filing deadline (including extensions) to remove excess contributions without major penalties. Contact your plan administrators ASAP and request a "return of excess contributions." They'll distribute the excess amount plus any earnings attributable to those contributions. You'll pay taxes on those earnings in the year you receive the distribution. If you don't correct the over-contribution, you'll face a 6% excise tax on the excess amount for EACH YEAR it remains in the account. That can add up quickly!

Has anyone ever considered just leaving the excess contribution in and paying the 6% penalty? I'm wondering if mathematically it might be better in some cases to just take the hit rather than removing the money from tax-advantaged accounts. With compound growth over decades, maybe the penalty is worth it?

I went through this exact situation two years ago and can confirm what others have said - you need to act quickly to avoid the ongoing 6% penalty. One thing I learned that might help: if you have both a SEP-IRA and Solo 401k for the same business, you're essentially double-dipping on employer contributions since you're the same employer for both accounts. The IRS sees this as problematic even if you're technically under the aggregate limits. My CPA advised me to pick one account going forward - either consolidate everything into the Solo 401k (which gives you more flexibility with employee vs employer contributions) or stick with just the SEP-IRA. The Solo 401k is usually better if you want to maximize contributions since it allows that $23,000 employee deferral on top of the employer contribution. For fixing your current situation, call both plan administrators this week. Don't wait until closer to the tax deadline - some custodians take several weeks to process excess contribution returns, and you want this resolved before filing.

I'm dealing with a similar self-employment retirement account situation and found this thread super helpful! Just wanted to add one more resource that might help - the IRS has a specific publication (Publication 560) that covers SEP, SIMPLE, and Qualified Plans that breaks down these contribution limits pretty clearly. What really helped me understand my situation was realizing that as a self-employed person, you need to calculate your "net self-employment income" first (which is your business profit minus half of your self-employment tax), and THEN apply the 25% rule for employer contributions. This often results in a lower contribution limit than people expect. Also, if you're going to keep both accounts active this year while you sort things out, make sure you're not accidentally making employer contributions to both the SEP-IRA AND the Solo 401k employer portion - that's where the real problems can occur with the shared limits. Good luck getting this resolved! It sounds like you caught it in time to fix everything properly.

I just went through a very similar situation last month with my SEP-IRA and Solo 401k contributions, and I can tell you there's light at the end of the tunnel! Based on what you've described, it sounds like you may have made employer contributions to both accounts, which is where the problem lies. The key thing to understand is that as a self-employed person, you're wearing both the "employee" and "employer" hats, and the employer contribution limits are shared across all your business's retirement plans. Here's what worked for me: I contacted the custodian with the smaller account balance first and requested an "excess contribution removal" for the entire amount. This simplified everything and eliminated the confusion of trying to coordinate between two different account types. The process took about 10 business days, and they sent me a 1099-R for the earnings portion. One thing that surprised me was learning that I could actually contribute MORE through a Solo 401k alone than I was getting with both accounts combined. The Solo 401k lets you do the full $23,000 employee deferral PLUS up to 25% of net self-employment income as employer contributions, all in one account with one set of paperwork. Don't panic about penalties - as long as you get the excess removed before your tax filing deadline (including extensions), you'll just pay regular income tax on any earnings. The 6% excise tax only kicks in if you leave the excess in the accounts. You caught this early enough to fix it properly!

I'm a CPA who specializes in self-employment tax issues, and I want to clarify something important that might be getting lost in this discussion. The core issue isn't necessarily that you've exceeded contribution limits - it's that you cannot make employer contributions to BOTH a SEP-IRA and Solo 401k for the same business in the same tax year. This is a common misconception that trips up many self-employed individuals. Here's what's happening: You can make the $23,000 employee deferral to your Solo 401k (that's fine), but the $28,500 you put into the SEP-IRA counts as an employer contribution. If you also made any employer contributions to your Solo 401k beyond the employee deferral, then you've violated the rule about having multiple employer-sponsored plans for the same business. The solution is exactly what others have suggested - remove the excess contributions from one account before your tax deadline. I'd recommend keeping the Solo 401k and removing everything from the SEP-IRA, since the Solo 401k gives you more flexibility and higher contribution limits going forward. Contact your SEP-IRA custodian immediately to request a complete distribution as an "excess contribution removal." Make sure they code it properly on the 1099-R. You have until your tax filing deadline (including extensions) to fix this without major penalties.