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
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