SEP vs Solo 401k
The question of SEP vs Solo 401k is an important consideration for small business owners. Many mistakenly believe that they are too small for the Solo 401k Plan and opt for the SEP IRA instead. But the truth is, the Solo 401k (or Owner-Only 401k or Individual 401k) is a much more powerful retirement vehicle.
SEP vs Solo 401k: Comparing the two
Self-employed or small business owners without full-time employees can set up a SIMPLE IRA/SEP IRA or a Solo 401k. (The IRS defines “full-time” as working over 1,000 within a 12-month period).
The Solo 401k is a qualified retirement plan that is inexpensive to set up and simple to maintain. But its greatest advantage is in its contributions.
The maximum Solo 401k contribution limit for 2013 is $51,000, which is also the same with the SEP IRA. The difference is in how the maximum contributions can be reached within each plan. With the Solo 401k, the maximum contribution can be achieved with earnings as low as $134,000. But the SEP IRA requires the owner to earn at least $204,000. The Solo 401k also has a $5,500 “catch-up” contribution available for those over 50 year of age. The SEP IRA does not have this “catch-up” provision.
The Solo 401k also has a Roth provision, allowing Roth contributions, Roth conversions, and rollovers of Roth 401ks into the plan. The SEP IRA does not have this ability.
Sense Financial structures the Solo 401k plan without the need for a custodian. With our plan documents, you have the ability to establish the Solo 401k accounts as non-custodial accounts at various financial institutions. This eliminates the cost and delays associated with the custodian. The Solo 401k owner has checkbook control over the plan and its assets.
Don’t make the mistake of assuming the SEP IRA and the Solo 401k are equal retirement options. Compare the SEP vs Solo 401k. The right choice can save you thousands of dollars in administrative cost as well as tax savings!
Contact one of our retirement experts to discuss these and many other benefits of the Solo 401k Plan. Call us for a free consultation.
Related Terms:
- sep ira
- sep vs solo 401k
- roth solo 401k
- solo 401k roth