Self-directed investors who own small companies (ten employees or less) often compare the benefits of a Solo 401(k) with those of a SEP IRA. Below is a comparison of the two plans and their unique benefits to employees and employers:
What is a SEP IRA?
Simplified Employee Pensions, or SEP IRAs, are popular employer plans for self-employed individuals. With a SEP IRA, you can choose the percentage of contribution for any given year (0-25% of earned income) for yourself and your staff. The only requirement is that the contribution percentage, in any year, be the same for each employee. Additionally, SEP IRA contribution limits are typically higher than those of Traditional or Roth IRAs.
What is a Solo 401(k)?
A Solo 401(k) is simply a 401(k) plan for companies with one staff member - the account holder. Solo 401(k)s are no different from their employer-sponsored counterparts from a contribution limit and tax advantage standpoint. However, with a Solo 401(k), the employer, trustee, and participant are often the same person. For self-employed persons or companies with no qualifying employees, a Solo 401(k) plan allows the employer/participant to make higher annual contributions and exercise a greater degree of flexibility when acquiring assets.
What is the difference?
Both plans offer a distinct suite of benefits that can promote the retirement success of self-employed investors. Please don't hesitate to give us a call at 877-742-1270 or send us an e-mail at firstname.lastname@example.org to learn more about these account types and the many other account types available for self-direction.