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Solo- Entrepreneur? Read about the pros and cons of a Solo 401(K) VS. SEP IRA

Saving for retirement is top of mind for many Americans. 57% of workers say saving for retirement is their top priority even ( If you are self-employed or a small business owner, you may be looking to get some answers on what options are available and most advantageous to you. Solo 401(k) may be one solution that deserves your attention if saving is at the top of your priority list. Solo 401(k)s are qualified retirement plans, designed for employers with no full-time employees other than the business owner(s) and their spouse(s). The solo 401(k) is different than a general 401(k) in that because there are limitations on who can participate, the plan is not subject to the complex ERISA rules that can make a business put implementing a retirement plan on the back burner.

With a Solo 401(K) one of the largest advantages is the ability to potentially contribute more money than you would into another type of retirement plan. The annual contribution limit for 2018 for a SEP IRA are $55,000 however, you are capped at 25% of your compensation up to that limit. With a 401(k) the contribution limit is $55,000. This can include up to 96% (still need to pay FICA taxes) of compensation. Additionally, if you are over the age of 50 there is a $6,000 catchup allowed. Another advantage is the ability to have a ROTH 401(K) feature (post-tax funds), which is critical for those folks who are over the income threshold to own a ROTH IRA OR just want to differ more monies into ROTH Savings than the IRA limits. It is important to note however; the ROTH limits are capped at the salary deferral limitation of the $18,500 (2018). All employer match and profit sharing money to get to the $55,000 total cap after the $18,500 must be pretax. With SOLO K plans, there is also the ability to loan against the account balance for up to 50% of the account with a $50,000 maximum limit. ( Although loaning from your retirement isn’t an ideal scenario, it can be a good tool in a pinch.

The determination of whether a solo 401(k) is going to be right for you is asking yourself, “Is putting away a lot of money paramount to me and my goals?”, and then take into consideration how much you need to defer. If you aren’t going to need a loan, ROTH savings or to go above 25% of your compensation in savings, a SEP can make more sense. SEP IRA’s are easy to set up and there aren’t any annual administration fees to maintain them. For a SOLO k, you still need to file a SIMPLE 5500 form and typically pay an administration fee. The average is anywhere from $250-500 per year although there are some brokerage firms with low or no fee options. (

When it comes to flexibility or other ancillary benefits, both a Solo 401(k) and a SEP IRA have investment flexibility and options, it just depends on the firm you select to open the account and what their fees are for investing or trading. It’s good to ask these questions upfront to know what your potential all in costs will be. You also will want to make sure to have a discussion with your tax advisor to confirm that this is the right choice for you and your business


Make figuring out what retirement plan is best for you an item on your to-do list today.



Securities, investment advisory and financial planning services offered through qualified registered representatives of MML Investors Services, LLC Member SIPC ( 300 Corporate Parkway, Suite 216N Amherst, NY 14226. 716-852-1321. Wilcox Financial is not a subsidiary or affiliate of MML Investors Services, LLC or its affiliated companies. CRN202002-226450