As you plan for the future, it’s important to pick the best retirement plan for a self-employed business owner. This video compares several choices and then focuses on a Solo 401(k) vs. SEP IRA. The reason for that is that accountants have traditionally suggested SEPs, but a SoloK might offer more functionality.

That said, you can keep things simple if your plan to save a relatively small amount each year. An IRA might be all you need, but be mindful of the ability to deduct contributions or your eligibility for Roth contributions.

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SEPs and Solo 401(k) plans both allow for employer contributions. The amount is similar, but things diverge quickly from there. A SoloK also allows for catch-up contributions and salary deferral contributions, which can increase your savings significantly each year.

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Plus, if you’re looking to maximize Roth contributions, some individual 401(k) plans can take voluntary after tax contributions, enabling the “mega backdoor Roth” strategy. That alone might make a 401(k) the best retirement plan option for your self-employment income.

Continuing the comparison of SEP vs. Solo 401(k) plans, we review things like loans, costs, the administrative burden, and more. By the end of the video, you should have a decent idea of what plan makes the most sense for you.

More on this topic:
Self employed adjustment
SoloK Deadline:
IRA income and deduction limits:

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CHAPTERS:
00:45 Does an IRA Make Sense?
02:34 SEP vs. SoloK Features Side-by-Side
03:20 Total Contribution Limits
03:54 Employer Profit-Sharing Contributions
04:39 SoloK: Bigger Contributions With Less Income
06:13 Employee Salary Deferral (Roth Allowed)
07:16 Voluntary After-Tax Contributions
07:40 401(k) Plan Loans
08:05 Deadlines to Establish a Plan
10:19 401(k) Max Contribution Example
12:47 Mega Backdoor Roth for Solo 401(k)
14:24 Costs for SEP vs. Solo 401(k) Plans
15:18 How Compensation Works With Self-Employment Tax
16:53 No Income Limits for Eligibility to Contribute
17:16 What if You Hire?
18:52 Solo 401(k) vs. SEP Paperwork Requirements
19:50 SIMPLE IRA Plans
20:36 Investment Options – Any Better?

IMPORTANT:
Tax laws are complicated and they change over time. Get updated information from a tax expert familiar with your situation before you make any decisions. It’s impossible to cover everything you need to know in a video like this. The only thing that’s certain is that you need more information than this. Always consult with a CPA before making decisions or filing a tax return. This is general information and entertainment, and is not created with any knowledge of your circumstances. As a result, you need to speak with your own tax, legal, and financial professional who is familiar with your details. This video is not a substitute for individualized, personal advice. Please verify with your plan administrator and document providers when employer plans are involved. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Investments are not bank guaranteed and may lose money. Opinions expressed are as of the date of the recording and are subject to change. “Likes” should not be considered a positive reflection of the investment advisory services offered by Approach Financial, Inc. The Comments section contains opinions that are not the opinions of Approach Financial, Inc., and you should view all comments with skepticism. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration….(read more)

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retirement planning is an essential aspect of financial planning for any working individual. While employees of companies usually have access to employer-sponsored retirement plans, self-employed individuals have to make their own arrangements. Fortunately, there are several excellent retirement plans that self-employed individuals can choose from. In this article, we will discuss some of the best retirement plans for those who are self-employed, including SEP, Solo 401(k), and more.

SEP IRA:

The Simplified Employee Pension (SEP) IRA is an individual retirement account (IRA) designed for self-employed individuals or small business owners. With a SEP, you can make contributions to your own retirement account and those of your employees. The contribution limits are relatively high, which makes it an attractive option for self-employed individuals. For the tax year 2021, you can contribute up to 25% of your net self-employment income, with a maximum contribution limit of $58,000.

Solo 401(k):

The Solo 401(k) is similar to the traditional 401(k) but designed for small business owners or self-employed individuals with no employees, excluding a spouse. This plan allows you to contribute both as an employee and an employer, thus potentially allowing you to save more money. The employer contribution limit is up to 25% of your net self-employment income, with a maximum combined contribution limit of $58,000 for the tax year 2021.

Defined Benefit Plan:

A defined benefit plan is a traditional employer-sponsored plan where you receive a fixed income in retirement. As a self-employed individual, you can set up your own-defined benefit plan, which can be beneficial if you have a high net income. Contributions to the plan are tax-deductible, and there are no contribution limits. However, you will need to consult a financial advisor to ensure that the plan is suitable for your needs.

Keogh Plan:

Keogh plans are retirement plans that are designed for self-employed individuals. They are similar to 401(k)s and SEPs, but they have different contribution limits, and the scope for investment is broader. The contribution limit for a Keogh plan is up to 25% of your net self-employment income, up to a maximum limit of $58,000 for the tax year 2021.

Conclusion:

retirement planning is crucial regardless of whether you are employed or self-employed. Self-employed individuals have several excellent retirement plan options to choose from, each with their own unique features and benefits. Before selecting a plan, it’s essential to consider your needs, including your current and future net income, eligibility criteria, and contribution limits. Consulting with a financial advisor can be beneficial to determine the best retirement plan suited to your needs.