SEP-IRA vs SEP-401k: Which Retirement Plan To Choose
SEP-IRA vs SEP-401k: Which Retirement Plan To Choose
* A SEP-IRA allows up to 25% of compensation (up to $45,000 for 2007) to be stashed away in a tax-deferred account (to be used at retirement age, just like any other Traditional IRA).
* A SEP-401k allows up to $15,500 in salary deferrals, like any other 401k plan (employee contributions) and up to 25% of compensation in “employer” contributions (up to $45,000 total, between the “employee” and “employer” contributions). The catch: the small business can only have the owner and his/her spouse as the only two employees: no other employees allowed.
Which one to choose depends on the individual conditions of every small business owner. The SEP-IRA is extremely simple to handle, fund, open, and report. However, the SEP-401k can potentially allow you to stash more money away from Uncle Sam’s (for a while): especially true for most people who don’t earn $200,000 on their small business. A small business owner that earns $100,000 (after expenses) can stash away $15,500, and on top of that, 25% of the $100,000 ($25,000) for a total of $40,500. The SEP-IRA owner could only stash away the $25,000. Big difference!Uncle Sam always presents you with a catch. The SEP-401k is only available to very small business: owner and spouse. If you plan to have employees, like I do… you can’t use it. The other catch is if you already have a 401k in another job. The 15,500 401k limit is for all jobs you hold, and if you are already stashing money away from an employer, you might not be able to stash the full amount using the SEP-401k.
For most independent consultants, you may want to go for the SEP-401k. For those with aspirations of growing your business in the VERY near future or those that alternate between gigs and full time jobs: go with the SEP-IRA.
Regardless, you should choose at least one of them. After all, you need a way of saving more for retirement. Independent people don’t have pensions, and due to lack of provisions for the self employed on Health Insurance Portability Act, health insurance costs may be higher than for those with full time jobs when you reach retirement age.
SEPIRA vs SEP401k Which Retirement Plan To Choose - To learn more about this author, visit Jose Anes's Website.
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Definitions first:
* A SEP-IRA allows up to 25% of compensation (up to $45,000 for 2007) to be stashed away in a tax-deferred account (to be used at retirement age, just like any other Traditional IRA).
* A SEP-401k allows up to $15,500 in salary deferrals, like any other 401k plan (employee contributions) and up to 25% of compensation in “employer” contributions (up to $45,000 total, between the “employee” and “employer” contributions). The catch: the small business can only have the owner and his/her spouse as the only two employees: no other employees allowed.
Which one to choose depends on the individual conditions of every small business owner. The SEP-IRA is extremely simple to handle, fund, open, and report. However, the SEP-401k can potentially allow you to stash more money away from Uncle Sam’s (for a while): especially true for most people who don’t earn $200,000 on their small business. A small business owner that earns $100,000 (after expenses) can stash away $15,500, and on top of that, 25% of the $100,000 ($25,000) for a total of $40,500. The SEP-IRA owner could only stash away the $25,000. Big difference!Uncle Sam always presents you with a catch. The SEP-401k is only available to very small business: owner and spouse. If you plan to have employees, like I do… you can’t use it. The other catch is if you already have a 401k in another job. The 15,500 401k limit is for all jobs you hold, and if you are already stashing money away from an employer, you might not be able to stash the full amount using the SEP-401k.
For most independent consultants, you may want to go for the SEP-401k. For those with aspirations of growing your business in the VERY near future or those that alternate between gigs and full time jobs: go with the SEP-IRA.
Regardless, you should choose at least one of them. After all, you need a way of saving more for retirement. Independent people don’t have pensions, and due to lack of provisions for the self employed on Health Insurance Portability Act, health insurance costs may be higher than for those with full time jobs when you reach retirement age.
SEPIRA vs SEP401k Which Retirement Plan To Choose - To learn more about this author, visit Jose Anes's Website.
Like this article? Share it with your friends
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Leanne Hoagland-SmithAre your sales where you want them to be? Will you be one of the few who achieves sales or business success or one of the many who have failed to change? Are you tired of being told you are like everyone else? Then you may find my first book on sales of interest. Be the Red Jacket in the Sea of Gray Suits, The Keys to Unlocking Sales available at Amazon or at http://www.processspecialist.com/red-jacket.htm. This book is a reflection of my no-nonsense approach to improving sales to overall business results. If you are truly committed to making sustainable changes, then I can help you secure a positive return on your investment because I focus on executable solutions not telling you the problems you already know you have. From training to corporate (group) coaching to executive one on one coaching, my approach is to assess, create awareness, build a goal driven action plan and then execute. The bottom line question is "Not do you or your employees know it, but do you or they want to do it?" Please call for a free strategy session at 219.759.5601. - Visit Leanne Hoagland-Smith's Website |
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