I'm going to be straight with you--I'm an engineer who fixes circuit boards, not a tax advisor. But I ran into this exact issue when I left Intel after 14 years and started The Phone Fix Place. The deciding factor for me was the pro-rata rule. A SEP IRA would've torpedoed my ability to do backdoor Roth conversions because it counts as a traditional IRA for tax purposes. With a Solo 401(k), I could roll my old 401(k) money in and keep my traditional IRA at zero, preserving the backdoor Roth strategy. Here's the specific threshold that mattered: I was making over $161k (2024 Roth IRA phase-out limit for single filers), so direct Roth contributions were off the table. The Solo 401(k) let me contribute up to $69k in 2024 as both employer and employee, while keeping my IRA balance clean for conversions. I went with Fidelity for mine because they had zero fees and the process was straightforward--no maintenance fees, no transaction costs. Talk to a CPA who specializes in small business before you commit, because one wrong rollover can mess up years of backdoor Roth contributions.
I'm going to level with you--I run a painting company, not a financial advisory firm. But when my father passed the business to me and my brothers, we had to restructure everything, and this exact question came up with our CPA. The deciding factor for us was employee headcount. A Solo 401(k) only works if you have no full-time employees other than owners and spouses. We have a crew of hand-picked craftsmen who work year-round, so we were immediately disqualified. If you have even one W-2 employee working over 1,000 hours annually, the Solo 401(k) option disappears and you're looking at a full 401(k) with testing requirements. In our case, we went with neither and used a different structure entirely. But here's the threshold that matters if you're truly solo: the moment you hire your first legitimate employee (not a 1099 contractor), your Solo 401(k) becomes non-compliant. I've seen two other Rhode Island contractors miss this and get hit with penalties during audits because they treated their lead painter as a contractor when he should've been W-2. If you're actually solo with no plans to hire, the Solo 401(k) is the move. But track your contractor relationships carefully--Rhode Island and the IRS are both cracking down on misclassification, and one reclassified worker can retroactively kill your Solo 401(k) eligibility.