The only cited disadvantage I have seen for solo 401k's are fees to administer them. My broker has no fees, so we can cross that off the list.

Given my position to max out a solo 401k and contribute X% of profits to it, what advantage does an IRA have at all, given its contribution limit being such a fraction of the solo 401k? I am aware of SEP IRA's which also have a high contribution limit so we can fact that into this question too.

Assume only pre-tax plans, so no Roth. This is not assuming that IRAs are mutually exclusive of owning a 401k plan.

  • Your question isn't perfectly clear... are you asking whether to have your own 401K vs an IRA through an employer? If that's your question... matching. Will your employer provide any matching on a personally set up 401K? If not, make sure you don't miss that.
    – THEAO
    Sep 25 '13 at 14:05
  • His employer does not offer one - money.stackexchange.com/questions/24443/… Sep 25 '13 at 16:51
  • 2
    @THEAO What is an IRA through an employer? Sep 25 '13 at 18:05

IRA doesn't come instead of 401k, it comes in addition. That's the advantage - another $5500 tax deferred in addition to maxing out your 401k (if you're within income range of course).

  • 2
    +1 Exactly - If he doesn't set up the Solo 401(k), he has the deductible IRA with low limit. The Solo 401(k) does have paperwork needed once the account exceeds a certain value ($250K?) but it's the way to go for maximum savings. Sep 25 '13 at 16:53
  • yes, I understand that they aren't mutually exclusive, but if you can max out a solo 401k with max contribution + 20% of profits you get like $50,000 in tax deferral that you can access and invest in much greater ways than an IRA. an additional $5500 is a bit paltry in comparison and is just another account to keep track of. in year 2 of this one would expect a >$100,000 401k which can be borrowed against, and a $10k IRA which cannot be accessed. I am looking for perks I haven't thought of
    – CQM
    Sep 27 '13 at 6:27
  • @CQM they differ wrt ERISA protections and bankruptcy shielding. Check with a lawyer, IIRC it depends on state, but in some states IRAs are protected much better.
    – littleadv
    Sep 27 '13 at 7:15
  • @littleadv would you be interested in revisiting your above comment? It seems that 401ks are protected much better in bankruptcy shielding at the federal level, so I'm curious about a source
    – CQM
    Nov 23 '16 at 20:29

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