Tax Planning
Retirement Plans for the Self-Employed: SEP-IRA vs. Solo 401(k)
Working for yourself means no company 401(k), but the options you do have are often more generous. And they cut your taxes today.
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01Why This Is a Tax Play, Too
Contributions to these plans generally reduce your taxable income now while building retirement savings. It's one of the few moves that helps you today and decades from now.
02The SEP-IRA
Simple to set up and maintain, a SEP-IRA lets you contribute a percentage of net self-employment income up to a high cap. Great for a one-person business that wants minimal admin.
03The Solo 401(k)
For a business with no employees besides an owner and spouse, a Solo 401(k) often allows even larger contributions because you contribute as both employee and employer. See the IRS Solo 401(k) page.
04Which plan fits your business?
SEP-IRAs win on simplicity; Solo 401(k)s often win on maximum contribution and flexibility. Income level and whether you want to save aggressively drive the choice.
05Deadlines Matter
Setup and funding deadlines differ by plan and can fall before you file. Miss them and the tax benefit for the year is gone, so plan ahead.
Common questions
What is the main difference between a SEP-IRA and a Solo 401(k)?
A SEP-IRA is the simpler plan to open and maintain, with contributions set as a percentage of net self-employment income. A Solo 401(k) is for a business with no employees other than an owner and spouse, and it often allows larger contributions because you contribute as both employee and employer.
Do contributions to these plans lower my taxes this year?
Contributions to either plan are generally deductible in the year they are made, which reduces taxable income now while the savings build for later. That is why the choice of plan is a tax decision as much as a retirement one.
When do I have to open and fund the plan?
Setup and funding deadlines differ by plan, and some fall before the return is filed. Missing the deadline means the deduction for that year is gone, so choose and open the plan before year end rather than at filing time.
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Schedule a ConsultationThis article is general information, not individualized tax, legal, or financial advice. Every situation is different. Reach out and we'll look at yours directly.