Can I Contribute to SEP IRA and Solo 401k for Tax Benefits and Retirement

Contributing to both a SEP IRA and a Solo 401(k) can be a smart move for tax benefits and retirement savings.

You can contribute to a SEP IRA and a Solo 401(k) if you're self-employed or a small business owner, allowing you to save for retirement and reduce your tax liability.

With a SEP IRA, you can contribute up to 20% of your net earnings from self-employment, up to a maximum of $57,000 in 2022.

Solo 401(k) contributions are also limited, with a maximum of $57,000 in 2022, or 20% of your net self-employment income, whichever is less.

A 401(k) is a type of defined contribution plan that allows you to set aside pre-tax or post-tax dollars for retirement.

Employers can also contribute on your behalf, either by matching your contributions or by contributing a percentage of your salary.

The IRS sets limits on annual contributions to 401(k)s to prevent over-taxation. For 2024, these limits are as follows:

There are different types of 401(k) plans, including standard employee-sponsored plans and the SIMPLE 401(k), which is geared towards small businesses.

If you're considering contributing to a SEP IRA, it's essential to understand the contribution limits.

The annual contribution limit for a SEP IRA is tied to 25% of your compensation, and it's capped at a specific amount each year.

For 2024, the maximum annual contribution to a SEP IRA is $69,000.

In 2025, the limit increases to $70,000.

Here's a summary of the SEP IRA contribution limits for 2024 and 2025:

Choosing a 401(k) Plan can be a bit overwhelming, but it's essential to make the right decision for your financial future. The good news is that there are two popular options: Solo 401(k) and SEP IRA.

A Solo 401(k) is a great choice if you're self-employed or have a side gig, as you can contribute up to 100% of your earned income, up to $23,000 in 2024, without maxing out your employee contributions elsewhere. This can be a huge benefit for additional tax-advantaged retirement savings.

However, if you have employees other than your spouse or children, a Solo 401(k) is no longer an option, and you'll need to consider a SEP IRA or a traditional 401(k) plan. SEP IRAs can be cost-effective for small business owners with employees, but they have fewer restrictions and lower administrative costs.

If you're looking to contribute to a 401(k) plan, it's essential to weigh the pros and cons of each option. A Solo 401(k) may allow you to shelter more income from taxes and borrow from the plan, but it comes with higher administrative costs and tax reporting requirements. On the other hand, a SEP IRA is more straightforward, but it counts against you for a Backdoor Roth IRA due to the Pro Rata rule.

A 401(k) is a type of defined contribution plan that allows you to set aside pre-tax or post-tax dollars for retirement. It's a great option for those who want more control over their retirement savings.

The IRS imposes limits on how much you can contribute annually to a 401(k) to limit the amount of tax-advantages you receive. For 2024, the limits are:

There are different types of 401(k) plans, including the standard employee-sponsored 401(k) plan and the SIMPLE 401(k) plan, which is available to small businesses with 100 or fewer employees.

Choosing a 401(k) can be a bit overwhelming, especially if you're self-employed or have multiple income streams.

If you're a self-employed physician, a solo 401(k) plan is often the most common option, but it's not the only choice. The IRS imposes limits on contributions, so you can contribute up to $23,000 through elective deferrals, and an additional $7,500 as catch-up contributions if you're 50 or older.

There are different types of 401(k) plans, including standard employee-sponsored plans and SIMPLE 401(k) plans for small businesses with 100 or fewer employees. If you have employees other than your spouse or children, a solo 401(k) is no longer an option, and you'll need to consider a 401(k) versus a SEP IRA.

SEP IRAs can be a cost-effective way for small business owners with employees to save for retirement, but they have fewer restrictions and lower administrative costs than running 401(k) plans with employees. Without employees, you may be able to contribute more to a solo 401(k), particularly if you're not contributing to an employer-sponsored plan elsewhere.

You can participate in both a SEP IRA and a 401(k) plan as long as they're offered by separate companies. This can help you maximize your retirement savings, but be aware that your contributions are still subject to some limitations.

If both plans are offered by the same business, your total contributions are limited to the lesser of $57,000 or 25% of the net earnings from self-employment.