Small Business Retirement Plans – SEP-IRA vs. Solo 401(k)

One of the best tax deductions for a small business owner is funding a retirement plan. Beyond any tax deduction you are saving for your own retirement.  As a fellow small business person, I know how hard you work.  You deserve a comfortable retirement. If you don’t plan for your own retirement who will? Two popular small business retirement plans are the SEP-IRA and Solo 401(k).

SEP-IRA vs. Solo 401(k) SEP-IRA Solo 401(k) Who can contribute? Employer contributions only. Employer contributions and employee deferrals. Employer contribution limits The maximum for 2018 is $55,000 and increases to $56,000 for 2019. Contributions are deductible as a business expense and are not required every year. For 2018, employer plus employee combined contribution limit is a maximum of 25% of compensation up to the maximums are $55,000 and $61,000, respectively. For 2019 these limits increase to $56,000 and $62,000. Employer contributions are deductible as a business expense and are not required every year. Employee contribution limits A SEP-IRA only allows employer contributions. Employees can contribute to an IRA (Traditional, Roth, or Non-Deductible based upon their individual circumstances). $18,500 for 2018. An additional $6,000 for participants 50 and over. In no case can this exceed 100% of their compensation.The limits for 2019 increase to  $19,000 and $25,000 respectively. Eligibility Typically, employees must be allowed to participate if they are over age 21, earn at least $600 annually, and have worked for the same employer in at least three of the past five years. No age or income restrictions. Business owners, partners and spouses

Keep reading this article on The Chicago Financial Planner, Roger Wohlner - Blog.