Template. You can’t open a solo 401(k) plan if you have an employee other than your spouse. With a Traditional or a Roth IRA, an individual's contributions are generally limited to $6,000 a year in 2019 and 2020, or $7,000 for those age 50 and older. Differences between SIMPLE IRAs and traditional IRAs. If you don’t love the SEP-IRA option, you might wonder what other options exist for the self-employed. SEP IRA vs. A SIMPLE IRA is a written salary reduction arrangement that allows employees of small businesses to make elective contributions into individual retirement arrangements (IRAs) that are set up for the benefit of each eligible employee. Congress first authorized individual retirement arrangements, sometimes referred to as individual retirement accounts, or IRAs, in 1974 as part of the Employee Retirement Income Security Act. With a SEP-IRA, you can contribute as much as 25% of compensation up to a maximum of $56,000 in 2019, and even more for employees over 50. Finally when comparing a SEP IRA vs SIMPLE IRA, the other major difference is the contribution limits. Full Comparison Of Retirement Accounts Solo 401k Sep Ira. Dollar-for-dollar match of employee contributions up to 3% of each employee's compensation (which can be reduced to as low as 1% in any 2 out of 5 years). The SEP IRA’s a little more exclusive; only the self-employed or small business owners are eligible to open one. Both SEP IRAs and SIMPLE IRAs are relatively easy to set up, and don’t require a lot of paperwork to administer. They are easy to administer, require no annual IRS reporting, are cost-effective, and are limited to those individuals with less than 101 employees. A growing business with a SIMPLE IRA plan needs to watch that 100-employee limit closely as they expand. Remember that SEP IRA contributions can equal 25 percent of an employee’s salary up to $49,000. The companies offering these options must not have another retirement plan in place. The SEP IRA and SIMPLE IRA were created to help smaller employers, including the self-employed, have a more robust vehicle to help employees save for retirement. Option 1. A SEP is an Individual Retirement Account (IRA). The SEP rules permit an employer to contribute (and deduct) each year to each participating employee's SEP-IRA up to 25 percent of the employee's compensation or $57,000 for 2020, whichever is less. Its rules are straightforward and it provides a moderate amount of tax-advantaged space that you can use. Some of the top SEP IRA providers include: Vanguard. Option 2. But only the employer may contribute to a SEP-IRA account. SIMPLE IRA Plan A SIMPLE IRA plan is a Savings Incentive Match Plan for Employees. The contribution limits of a SIMPLE IRA vs. SEP-IRA are different too. The SIMPLE IRA contribution limit is $12,500 ($13,500 in 2019), with a catch-up limit of $3,000. There are many differences between the SEP vs. The SIMPLE IRA contributions are actually employee salary reduction contributions from your employee side. Qualified taxpayers may get a tax deduction for contributions to a traditional IRA. SEP IRA – With a SEP IRA, an employee can access their funds and make a withdrawal at any time after the age of 59½. The SEP IRA contributions come from your employer side. The Employer Plan: 401(k) A 401(k), which is widely used across the United States, is a retirement savings account created for you by your employer. Read on to learn which plan type is right or you! Since they’re designed to be like a 401(k) for workers in the gig economy, SEPs allow for a much higher maximum annual contribution. Retirement Plan Comparison Chart … The Takeaway: Solo 401(k) vs. SEP IRA. Contributions are made directly to an IRA set up for each employee (a SEP-IRA). You transfer money from your paycheck into the retirement account. SIMPLE IRA vs. 401(k) For employees, the biggest differences between a SIMPLE IRA vs. 401(k) are the greater contribution limits available with a 401(k). While Traditional and Roth accounts are very similar in their rules, SEP and SIMPLE IRAs come with more varied guidelines. The chart will provide a clear comparison of the features of the 401(k)/403(b), Solo 401(k), SIMPLE IRA and SEP IRA accounts. For self-employed workers and small companies with only a few employees, a SEP IRA may be a better choice. We broke down the two main plans, SEP and SIMPLE IRAs, to explain the advantages, who qualifies, and provide examples. 3 Reasons A 401 K Plan Is Better Than A Simple Ira. It also allows for catch-up contributions for those over age 50. To adopt a SEP or a SIMPLE IRA, we make it very easy. Contribute 2% of each employee's compensation. This type of plan allows employer matches which are tax deductible, and your deductions can be made on a pre tax benefit. 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