I own my company and am the only employee. I have set up a SEP-IRA, but have yet to contribute to it. Can anyone expand on benefits of my SEP-IRA vs. opening a Solo 401k and contributing to it instead?

1 Answer 1


Pros of Solo 401k:

Higher contribution limits, you can contribute $17500 (this amount fluctuates every year, usually higher) and then can contribute 20% of your profits up to a total yearly contribution of $50,000 for a person filing as single.

The other perks of 401k's come a long with that, such as being able to borrow against your 401k for 5 years. Keeping you basically as liquid as ever. But of course there are tax consequences if you fail to pay back, but this is not a lecture on borrowing, this is a lecture on liquidity :)

IRA's lack such liquidity, where pretax earnings really are tied up until retirement, except in a few very short term exceptions (ie. 60 days). Although SEP IRA's have similar contribution limits, they have more complicated rules about how to compute the actual tax deduction you can receive from contributing.

Hope that helps.

For example, given how much I earn, I generally opt for maxing out a traditional IRA and chomping away at the solo 401k max.

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