{"id":3558,"date":"2022-01-25T18:00:50","date_gmt":"2022-01-25T22:00:50","guid":{"rendered":"https:\/\/www.incsight.net\/?p=3558"},"modified":"2026-07-08T18:32:39","modified_gmt":"2026-07-08T23:32:39","slug":"what-is-a-sep-ira-and-solo-or-individual-401k","status":"publish","type":"post","link":"https:\/\/www.incsight.net\/blog\/2022\/01\/25\/what-is-a-sep-ira-and-solo-or-individual-401k\/","title":{"rendered":"What Is A SEP IRA and Solo or Individual 401k?"},"content":{"rendered":"<div class=\"et_pb_section_0 et_pb_section et_section_regular et_block_section preset--module--divi-section--default\">\n<div class=\"et_pb_row_0 et_pb_row et_block_row\">\n<div class=\"et_pb_column_0 et_pb_column et_pb_column_4_4 et-last-child et_block_column et_pb_css_mix_blend_mode_passthrough\">\n<div class=\"et_pb_text_0 et_pb_text et_pb_bg_layout_light et_pb_module et_block_module preset--group--divi-text--divi-font-header--h1y3ko5--default preset--group--divi-text--divi-font-body--h19rs5u--default preset--group--divi-text--divi-font-body--h1yjkjr--default\"><div class=\"et_pb_text_inner\"><p>When we are working with businesses with no employees, outside of the owner(s), we usually land on two main options:<\/p>\n<ul>\n<li>SEP IRA<\/li>\n<li>Solo 401k (AKA Individual 401k)<\/li>\n<\/ul>\n<p>Again, if you are looking to put away $6,000 or less per year towards retirement one of these plans would likely not be necessary and instead you could do a traditional IRA.<\/p>\n<\/div><\/div>\n\n<div class=\"et_pb_text_1 et_pb_text et_pb_bg_layout_light et_pb_module et_block_module preset--group--divi-text--divi-font-header--h1y3ko5--default preset--group--divi-text--divi-font-body--h19rs5u--default preset--group--divi-text--divi-font-body--h1yjkjr--default\"><div class=\"et_pb_text_inner\"><h3>What Is a SEP IRA and What Do I Need To Know About SEP IRAs?<\/h3>\n<blockquote>\n<p>A SEP standards for Simplified Employee Pension.<\/p>\n<\/blockquote>\n<ul>\n<li><strong>Contributions and Matching<\/strong>\n<ul>\n<li>Able to contribute up to\u00a0<strong>25%<\/strong>\u00a0of your salary (S Corp) or\u00a0<strong>20%<\/strong>\u00a0of net income (Sole Prop or Single Member LLC) with a\u00a0<strong>max of $58,000<\/strong>\u00a0(2021).<\/li>\n<li>All contributions are pre-tax.<\/li>\n<li>This in an employER only contribution, the employee does not personally contribute.<\/li>\n<li>Employer MUST contribute the same percentage to all eligible employees.<\/li>\n<li>You do not need to contribute every year.<\/li>\n<li>Employer contributions can be made up to the due date (including extensions) for filing your tax return.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Tax Advantages<\/strong>\n<ul>\n<li>Business contributions are deductible business expenses.<\/li>\n<li>Investment gains are tax deferred until distribution.<\/li>\n<li>Roth option\u00a0<strong>NOT<\/strong>\u00a0available.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Filing and Compliance<\/strong>\n<ul>\n<li>Employer does not need to file a 5500.<\/li>\n<li>Discrimination testing is not required.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Notes<\/strong>\n<ul>\n<li>If you are organized as an S Corp you often are trying to take as low of a reasonable salary as possible which can limit the amount of SEP IRA contributions since it is based on a max of 25% of your salary.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h3>What Is a Solo 401k and What Do I Need To Know About Solo 401ks?<\/h3>\n<blockquote>\n<p>These can also be known as Individual 401ks.<\/p>\n<\/blockquote>\n<ul>\n<li><strong>Contributions and Matching<\/strong>\n<ul>\n<li>EmployEE contributions up to $19,500 (2021)\n<ul>\n<li>Catch-Up contributions up to $6,500 (Age 50+)<\/li>\n<\/ul>\n<\/li>\n<li>Additionally employER can contribute up to 25% of compensation.<\/li>\n<li>Total Max Contributions (EE + ER): $58,000 (2021) \u2013 Not included Catch-Up<\/li>\n<\/ul>\n<\/li>\n<li><strong>Tax Advantages<\/strong>\n<ul>\n<li>Business contributions are deductible business expenses.<\/li>\n<li>Investment gains are tax deferred until distribution.<\/li>\n<li>Offers both pre-tax &amp; Roth options.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Filing and Compliance<\/strong>\n<ul>\n<li>May require annual 5500 filing.<\/li>\n<li>Discrimination testing is not required due to having no employees.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h3>Should I Do a SEP IRA or Solo 401k For My Business?<\/h3>\n<blockquote>\n<p>There is no right answer for every business but we are going to outline some general observations to consider.<\/p>\n<\/blockquote>\n<ul>\n<li>Typically a Solo 401k will allow you to put more money towards retirement, especially with an S Corp owner looking to take the lowest reasonable salary possible.\n<ul>\n<li><strong>Example:\u00a0<\/strong>S Corp Owner with a salary of $80,000\n<ul>\n<li><strong>SEP IRA:\u00a0<\/strong>Max employER contribution is $20,000 (25% of $80k)<\/li>\n<li><strong>Solo 401k:\u00a0<\/strong>Of your $80k salary, you could contribute as an employEE up to $19,500 and then the employER could match 25% for a total of $39,500 ($19,5000 + 25% of $80k)<\/li>\n<\/ul>\n<\/li>\n<li>For this reason we typically steer clients that want to max out retirement as much as possible towards a Solo 401k.<\/li>\n<\/ul>\n<\/li>\n<li>Contributions After 12\/31\n<ul>\n<li>You can setup and fund a SEP IRA after the year has been completed.<\/li>\n<li>You can fund the employER portion of a Solo 401k after the year is over but the employEE portion would need to be funded prior to year-end.<\/li>\n<li>For this reason if the year is already over and you still want to reduce taxable income through a retirement contribution we will recommend going with a SEP IRA. You can then always go with a Solo 401k in the next year assuming you can get on top of it and get it setup and funded early on.<\/li>\n<\/ul>\n<\/li>\n<li>Both plans are fairly reasonable and have little compliance required. Note a Solo 401k may have additional compliance as your retirement account grows past a certain dollar amount but still not a huge burden.<\/li>\n<li>General Rule of Thumb:\n<ul>\n<li><strong>S Corp Looking to Max Retirement:<\/strong>\u00a0Solo 401k<\/li>\n<li><strong>After Year-End, Looking to Contribute and Save Taxes:<\/strong>\u00a0SEP IRA<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>If you are looking for professional advice and help in this area, we work directly with Life, Inc Retirement Services.\u00a0<strong><a href=\"https:\/\/lifeincrs.com\/tax-savings-podcast\/\" target=\"_blank\" rel=\"noopener noreferrer\">Visit this page to get in contact!<\/a>.<\/strong>\u00a0<\/p>\n<p>On the link above you can setup a call to connect with an expert and get started right away. There is also a retirement plan evaluator which will guide you towards the best plan for your business.<\/p>\n<\/div><\/div>\n\n<div class=\"et_pb_text_2 et_pb_text et_pb_bg_layout_light et_pb_module et_block_module preset--group--divi-text--divi-font-header--h1y3ko5--default preset--group--divi-text--divi-font-body--h19rs5u--default preset--group--divi-text--divi-font-body--h1yjkjr--default\"><div class=\"et_pb_text_inner\"><ul>\n<li style=\"list-style-type: none;\">\n<p><strong>The Time Is NOW To Start Paying Less In Taxes.\u00a0<\/strong><strong>Join<span>\u00a0<\/span><span>TaxElm<\/span><span>\u00a0<\/span>and start eliminating taxes and growing your wealth!<\/strong><\/p>\n<p>What you'll get:<\/p>\n<ul>\n<li><strong>Tax Savings Blueprint and Training:<\/strong><span>\u00a0<\/span>This is your roadmap to hit the ground and start implementing. Know exactly which strategies are relevant to you and which ones you should focus on first! Then dive into the training library with content, videos, downloads, guides, templates, etc. and start implementing right away!<\/li>\n<li><strong>Unlimited Access to Tax Experts:<\/strong><span>\u00a0<\/span>Got a specific question about a tax rule? You\u2019ll have unlimited messaging access directly with-in the software to our team of tax experts to get the accounting and tax answers you need.<\/li>\n<li><strong>Annual Comprehensive Consultation:<\/strong><span>\u00a0<\/span>Once a year you get a live meeting with a tax expert to discuss anything tax savings you would like. This is your time to get your questions answered live 1-on-1.<\/li>\n<li><strong>Annual Tax Return Review:<\/strong><span>\u00a0<\/span>Each year, upload your prior year tax returns, and our expert team will meticulously analyze them to generate a custom report highlighting key findings and actionable savings strategies tailored to your specific tax situation.<\/li>\n<li><strong>Monthly Webinars and Training:<\/strong><span>\u00a0<\/span>Every month, we host a live, virtual training session on a key tax topic. Join us live and bring your questions or view the training on your own schedule (recordings are added to the tax training library).<\/li>\n<li><strong>Partner Directory and Discounts:<\/strong><span>\u00a0<\/span>You get exclusive, members-only rates and access to our expert referral network for accounting, bookkeeping, tax preparation, payroll, financial planning, legal, retirement planning, tax resolution, and more!<\/li>\n<li><strong>TaxElm Guarantee:<\/strong><span>\u00a0<\/span>We will present tax saving strategies that will, at a minimum, cover the cost of your subscription fee or your money back!<\/li>\n<\/ul>\n<p>It is like having a tax\u00a0strategist walking with you along this entrepreneurial journey!<\/p>\n<\/li>\n<\/ul>\n<\/div><\/div>\n<\/div>\n<\/div>\n\n<div class=\"et_pb_row_1 et_pb_row et_block_row\">\n<div class=\"et_pb_column_1 et_pb_column et_pb_column_4_4 et-last-child et_block_column et_pb_css_mix_blend_mode_passthrough\">\n<div class=\"et_pb_module et_pb_button_module_wrapper et_pb_button_0_wrapper preset--group--divi-button--divi-font--h1vi52x--default_wrapper\"><a class=\"et_pb_button_0 et_pb_button et_pb_bg_layout_light et_animated et_pb_module et_block_module preset--group--divi-button--divi-font--h1vi52x--default\" href=\"https:\/\/taxelm.com\/?via=incsight\">Join TaxElm<\/a><\/div>\n<\/div>\n<\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"","protected":false},"author":2,"featured_media":3569,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"rs_blank_template":"","rs_page_bg_color":"","slide_template_v7":"","footnotes":""},"categories":[32,40,56,52,39,55,36,51,33,48],"tags":[47,42,65,64,46,45],"class_list":["post-3558","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-accounting","category-banking","category-business","category-irs","category-operations","category-reimburse","category-small-business","category-tax-planning-strategy","category-taxes","category-year-end-strategies","tag-2021-tax-deductions","tag-blog","tag-capitalization","tag-depreciation","tag-small-business-tax-deductions","tag-tax-deductions"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.7 (Yoast SEO v27.7) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>What Is A SEP IRA and Solo or Individual 401k?<\/title>\n<meta name=\"description\" content=\"No employees besides yourself? 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