Comparison of Self-Employment Retirement Plan Options

Self-employed individuals are in a unique position when saving for retirement. Instead of being limited to the retirement plan options offered by their employers, self-employed individuals take that decision into their own hands. Before making this decision, it is important to understand the characteristics, benefits, and limitations of each plan option before deciding which route is best for you.

Type of Account	Employee Contribution Limit	Employer Contribution Limit	Catch-Up Contributions
SEP IRA	Not eligible	25% of employee's compensation or 20% of modified net profit for unincorporated business owners. Max for 2023: $66,000	Not permitted
Solo 401(k)	$22,500* *The annual contribution limit	25% of employee's compensation or 20% in the case of a sole proprietor or Schedule C taxpayer. Max for 2023: $66,000	$7,500 in 2023 for individuals over the age of 50
SIMPLE IRA	$15,500	3% of compensation	$3,500 in 2023 for individuals over the age of 50

*All contribution limits and rates in the above table are based on 2023 IRS tax rules.

While contribution limits are an essential difference between the three self-employment retirement plan options, they should not be the only consideration. Ease of set up and operation, flexibility, and reporting requirements are just a few of the key variables to these plans that should be acknowledged and considered prior to decision making. Each self-employed individual is unique in their needs and capacity to take on additional responsibilities, like annual reporting.

Type of Account	Pros	Cons
SEP IRA	Easy to set up and operate Low administrative costs Flexible annual contributions Generally, no filing requirements	Employer must contribute equally for all eligible employees Employer contribution only Participant loans not permitted
Solo 401(k)	Contributions can be made as an employer and employee Owner can contribute 100% ("earned income") up to the annual contribution limit Employer nonelective contributions up to 20% of compensation as defined by the plan for sole proprietor or Schedule C taxpayer "Earned income" - defined as net earnings from self-employment after deducting both: one-half of your self-employment tax and contributions for yourself	Nondiscrimination testing required as soon as there is another employee If employees are hired and meet eligibility requirements, the employer must include them in the plan and their elective deferrals will be subject to nondiscrimination testing A 1-participant plan is generally required to file an annual report on Form 5500-EZ if it has $250,000 or more in assets at the end of a year
SIMPLE IRA	Inexpensive to set up and operate Employees share responsibility for their retirement No discrimination testing required Employees may contribute in addition to employer contribution Generally, no filing requirements	Inflexible contributions Lower contribution limits than some other retirement plans Employer must contribute Participant loans not permitted

Retirement plan options are not one-size-fits-all, so it is important to weigh all your options and make an informed decision based on your individual goals and needs. If you are self-employed and want to learn more, please contact a One Day In July advisor.

For more information, please visit the IRS website for each account type:
SEP IRA - https://www.irs.gov/retirement-plans/plan-sponsor/simplified-employee-pension-plan-sep
SIMPLE IRA - https://www.irs.gov/retirement-plans/plan-sponsor/simple-ira-plan
Solo 401(k) - https://www.irs.gov/retirement-plans/one-participant-401k-plans

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Comparison of Self-Employment Retirement Plan Options

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(802) 503-8280
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Comparison of Self-Employment Retirement Plan Options

Form CRS & Disclosures

(802) 503-8280 welcome@onedayinjuly.com

Why The Name?

(802) 503-8280
welcome@onedayinjuly.com