Switching from Sep IRA to Solo 401k: What You Need to Know

Switching from a SEP IRA to a Solo 401k can be a smart move for self-employed individuals, allowing you to save more for retirement and potentially reduce your tax liability.

You can contribute up to 20% of your net earnings from self-employment to a Solo 401k, which can be a significant boost to your retirement savings.

The Solo 401k also offers higher contribution limits than a SEP IRA, with a maximum annual contribution of $57,000 in 2022.

This higher contribution limit can help you build a more substantial nest egg over time.

A solo 401(k) is a specialized retirement savings account designed for self-employed professionals and business owners without any full-time workers aside from possibly a spouse. It's essentially a one-participant 401(k) that allows participants to finance their accounts with pre-tax dollars.

To be eligible for a solo 401(k), an individual must be self-employed, can't have any employees apart from their spouse, and requires an employer identification number (EIN) sanctioned by the IRS.

Here are the key features of a solo 401(k) plan:

By understanding the basics of a solo 401(k), you can make an informed decision about whether it's the right choice for your retirement savings needs.

A retirement plan is a specialized savings account designed to help you save for your golden years. It allows you to set aside a portion of your income before taxes, reducing your taxable income and potentially lowering your tax bill.

To be eligible for a solo 401(k), you must be self-employed and have no employees apart from your spouse. This is a key requirement, so make sure you fit this criteria before exploring further.

A solo 401(k) offers a higher contribution limit compared to some company-sponsored plans. For example, you can contribute up to a certain amount of your income to a solo 401(k), which can be a significant advantage for self-employed individuals.

To get started with a solo 401(k), you'll need an employer identification number (EIN) sanctioned by the IRS. This is a straightforward process, but it's essential to have it before setting up your plan.

Here are the key requirements to be eligible for a solo 401(k):

SEP plans are a great option for self-employed doctors with 1099 income. They offer a simple and flexible way to save for retirement.

You can contribute up to 20% of your net self-employment income to a SEP plan, with a maximum of $57,000 in 2023. This is a significant amount, and it's one of the reasons why SEP plans are so popular among self-employed individuals.

One of the benefits of SEP plans is that they are relatively easy to set up and administer. You can open a SEP plan with a financial institution or a brokerage firm, and you can make contributions on a pre-tax basis to reduce your taxable income.

As a self-employed doctor, you can contribute to a SEP plan as your business owner, and your spouse can also contribute if they earn income from your business. This can help you save for retirement and enjoy some tax benefits along the way.

Here's a breakdown of the SEP plan contribution limits:

Keep in mind that SEP plans have some restrictions and requirements, such as the need to make contributions for all eligible employees. However, for self-employed doctors with 1099 income, SEP plans can be a great way to save for retirement and enjoy some tax benefits.

As you consider switching from a SEP IRA to a Solo 401(k), it's essential to understand the different types of 401(k) plans available. The Solo 401(k) is ideal for self-employed individuals or small business owners without employees.

A Solo 401(k) is a specialized retirement savings account created for self-employed professionals and business owners without any full-time workers aside from possibly a spouse.

The Standard 401(k) is offered by employers of all sizes, but it's not designed for self-employed individuals. The SIMPLE 401(k) is tailored for small businesses with 100 or fewer employees, which doesn't apply to solo entrepreneurs.

The Solo 401(k) boasts a higher contribution limit compared to the SEP IRA and doesn't impose potential age or income constraints like some company-sponsored plans might. However, it's essential to understand that not everyone can opt into this plan.

To be eligible for the Solo 401(k), an individual must be self-employed, can't have any employees apart from their spouse, and requires an employer identification number (EIN) sanctioned by the IRS.

As a solo 401(k) fan, you're likely looking to switch from a SEP IRA to this game-changing account. The solo 401(k) is your go-to for retirement savings as a business owner.

The solo 401(k) offers unique perks that can ramp up your retirement savings. You can contribute up to 20% of your income, or $57,000 in 2022, whichever is less.

You may have considered the 401k and SEP IRA as other retirement plan options, but the solo 401(k) is a more flexible and powerful choice. The solo 401(k) allows you to contribute both as an employee and employer.

To switch to a solo 401(k), you'll need to consider the various providers that offer this account. Some providers may offer unique tax advantages or other perks to help you make the most of your retirement savings.

A solo 401(k) plan offers high contribution limits, up to $70,000 annually in 2025.

You can also make catch-up contributions of an extra $7,500 for those 50 or older, which can significantly boost your retirement savings over time.

Solo 401(k)s provide tax-deferred growth, meaning your investments grow tax-free until you withdraw them, and some employers even offer matching contributions, essentially giving you additional funds.

Here are some key benefits of a solo 401(k) plan:

A 401(k) plan is a great way to save for retirement, and it has several key features that make it an attractive option. Tax-deferred growth is one of the main benefits, allowing your investments to grow tax-free until you withdraw them.

One of the advantages of a 401(k) plan is the potential for employer matching, which can essentially give you additional funds. This is a great perk if your employer offers matching contributions.

Higher contribution limits are another benefit of a 401(k) plan, allowing you to save more annually compared to Individual Retirement Accounts (IRAs). In 2024, you can contribute up to $23,000 of your income to your 401(k), and combining 50+ catchup contributions with employer contributions allows older workers to save up to $76,500 per year in 2025.

A solo 401(k) plan, also known as an individual 401(k), offers even higher contribution limits, up to $70,000 annually in 2025. This makes it an ideal choice for self-employed individuals and small business owners who want to maximize their retirement savings.

Here are some of the key features of a solo 401(k) plan:

In addition to these features, a solo 401(k) plan also offers loan flexibility, allowing you to borrow up to 50% of the plan value or $50,000 – whichever is less. This can be a great perk if you need access to funds in a pinch.

A solo 401(k) plan offers excellent tax benefits, including tax-deferred growth and potential tax deductions on contributions.

You can contribute up to $70,000 annually in 2025, making it a great option for self-employed individuals and small business owners. Contributions can be made either pre-tax or Roth, and you can even combine them with an after-tax mega-backdoor Roth strategy.

Tax-deferred growth means your investments grow tax-free until you withdraw them, and some employers match a percentage of your contributions, essentially giving you additional funds. Higher contribution limits compared to Individual Retirement Accounts (IRAs) make it a more attractive option.

Here are some key benefits of a solo 401(k):

A solo 401(k) is ideal if you have no employees other than a spouse, want to maximize contributions as both an employee and employer, or prefer flexibility with Roth and pre-tax contribution options.

You can make after-tax contributions, enjoy tax-free growth, and withdraw funds tax-free in retirement with a Roth option. Additionally, you may have the opportunity to perform a Mega Backdoor Roth conversion or roll over funds into a Roth IRA, enhancing your tax diversification strategy.

For a Solo 401(k), the contribution limit is up to $66,000 for 2023 and $69,000 for 2024, with an additional $7,500 catch-up contribution for those aged 50 and over.

Contributions can be made as both employer and employee, allowing for a total of $138,000 in contributions per year for couples. The Solo 401(k) plan also offers tax benefits, including tax-deferred growth and potential tax deductions on contributions.

Here are the key contribution limits for Solo 401(k) and SEP IRA plans:

The Solo 401(k) plan has higher contribution limits compared to SEP IRA plans, making it a more attractive option for those who want to save aggressively for retirement.

You can contribute to a Solo 401(k) before taxes, which will lower your taxable income for the year. Most Solo 401(k) plans also offer a Roth option, allowing you to contribute after-tax dollars.

Making a Roth contribution can be a great idea, especially if you expect to be in a higher tax bracket in retirement. Many experts suggest Roth solo 401(k)s for tax-free growth and withdrawals. You're paying taxes upfront, but you can pull out your money tax-free during retirement.

Some benefits of Roth contributions include tax-free growth and withdrawals. You can also contribute way more than you can with a regular Roth IRA. Plus, you can combine Roth contributions with a Mega Backdoor Roth conversion for enhanced tax diversification.

Here's a quick comparison of Roth and pretax contributions:

Keep in mind that you can also make both Roth and pretax contributions, taking advantage of the tax benefits of each. This can be a powerful way to save for retirement while cutting your taxes.

The SEP plan contribution limit is the lesser of 25% of your compensation or $57,000 for 2020.

Catch-up contributions do not apply to employer contributions, which can be a significant limitation for some individuals.

The maximum amount of self-employment compensation used for SEP plans is $285,000 for 2020.

For 401(k) plans, the 2020 limit is $19,500, plus a $6,500 catch-up contribution for those over age 50.

Contributions to a SEP plan are not reduced by contributions to a 401(k) plan, which is a benefit for those who want to maximize their retirement savings.

If your compensation exceeds the SEP plan limit, your contributions will be limited to 100% of your compensation.

The contribution limits for a Solo 401(k) plan are significantly higher than most other retirement plans, allowing you to save up to $23,000 of your income in 2024.

You can combine 50+ catch-up contributions with employer contributions to save up to $76,500 per year in 2025, making it an ideal choice for accelerated retirement savings.

The Solo 401(k) plan allows you to contribute as both an employer and employee, with no impact on Backdoor Roth IRA strategies.

Here are the key contribution limits for a Solo 401(k) plan:

For those 50 and over, an additional $7,500 catch-up contribution is available, allowing you to save even more for retirement.

The Solo 401(k) plan also offers Roth options, allowing you to make after-tax contributions, enjoy tax-free growth, and withdraw funds tax-free in retirement.

Remember to set your goals, balance growth and security, and mind the tax perks when determining how much to contribute to your Solo 401(k) plan.

When choosing a solo 401(k) plan, it's essential to consider the costs involved. Ideally, you'll find a plan that has no assets under management (AUM) fees or trading costs.

One provider that stands out is Ubiquity, which has been offering a low, transparent, flat-fee model since 1999. This can be a significant advantage for small business owners looking to save on plan costs.

Here are some key points to consider when evaluating plan costs:

With a SOLO 401k plan, you have the flexibility to choose from a wide range of investment options, including stocks and bonds.

This diversification can help you spread risk and potentially grow your retirement savings. SOLO 401k plans also offer mutual funds and ETFs, providing even more opportunities for a well-rounded portfolio.

When setting up a SOLO 401k plan, you'll want to consider the investment options available to you. SOLO 401k plans offer a wide range of investment options, including stocks and bonds, providing opportunities for diversified portfolios.

With stocks, you can invest in individual companies or a mix of different stocks to spread out your risk. Stocks can be a great way to grow your wealth over time.

Bonds offer a more stable investment option, providing regular income through interest payments. This can be a good choice for those who want predictable returns.

Mutual funds and ETFs can also be used to diversify your portfolio, offering a mix of different investments in one package.

As an investor, you'll need to manage a range of administrative tasks to keep your investments on track. This includes managing your portfolio, monitoring your accounts, and dealing with paperwork.

You'll need to keep track of your account statements, tax documents, and other important papers. These documents can be found in your online account or sent to you by mail.

Investment administrators can help with tasks such as account setup, payment processing, and reporting. They may also provide customer support and address any issues that arise.

Administrators often handle tasks like dividend payments, interest accruals, and capital gains distributions. These tasks are essential for maintaining accurate records and ensuring compliance with regulations.

Investors can also use online platforms to manage their accounts and investments. These platforms often offer features like account aggregation, tax reporting, and investment tracking.

Administrators can provide valuable insights and guidance to help you make informed investment decisions. They can also help you stay organized and on top of your administrative tasks.

You'll need to stay on top of your administrative tasks to avoid penalties and fees. Missing deadlines or failing to report income can result in costly consequences.