The Battle of SEP vs SOLO 401K: Which is The One for You?

SEP vs SOLO 401K

SEP vs SOLO 401K

It is understandable that there would be some confusion over which type out of the several self retirement plans would work for your self-employed status or small business needs. But at the end of the day, it all comes down to the battle of SEP vs Solo 401k. Both are considered to be the best retirement plans for solo proprietors, self-employed and even small businesses.  Which one will work for you? What are its pros and cons (if there are any)?  These questions will be answered in a short while. But first, you definitely need to compare one from the other to help you pinpoint the qualities that will get you sold on the either opening a 401k account or settling for an SEP.

SEP vs SOLO 401K: SEP IRA and How it Works

This would work for self-employed people, company owners and conjugal businesses that do not have any other employees to compensate. They can contribute to about 25% off of their W-2 profits or earnings or 20% of the net income (for self-employed) or to meet the contribution limit for SEP. The 2015 SEP IRA limit in terms of contribution is at $53,000.

As for its advantage, you can be sure that this type of retirement plan is a lot easier to manage, since it does not require a whole lot of paper works, paired with low-maintenance administrative needs. However, there is a notable disadvantage that you should know, and that is its limited opportunities for larger contributions and tax deductions. You can also keep in mind that loans are not offered through an SEP IRA.

SEP vs SOLO 401K: Solo 401 (k) and How it Works

Solo or self employed 401k plans work for those sole-proprietors and small business owners and even those self-employed individuals who are looking for ways to save more money for retirement. This means that an LLC, partnership, a corporation, sole-proprietorship, business owners are all capable of successfully setting up a 401k.

In the light of the SEP vs Solo 401k issue, you can take note that a solo or self-employed 401k plan offers the option for you to apply for a checkbook control. This allows you to take control of how you will be using your funds to acquire assets and make investments as allowed by the law. You can also be rewarded with more chances to make higher contributions and enjoy higher tax deductions. Should you be needing more funds for business, you can apply for a loan of as much as $50,000 or about 50% of your total retirement money. The downside to this is that you will have slightly more administrative tasks, compared to SEP.

Now that you know and have compared one from the either, it is up to you to decide which plan won the SEP vs Solo 401k battle.

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