Retirement Plan Options For The Self-Employed: Solo 401(k)s vs. SEPs
Jane is 54 years old and runs a one-person business, a one member LLC consulting firm. This is how the contributions to her Solo 401k Plan could look if she has $100,000 in profits in 2007:
|
Maximum Profit Sharing Contribution | $18,587 |
|
Maximum salary deferral to 401(k) | $15,500 |
|
Maximum catch-up deferral to 401(k) | $5,000 |
|
Total | $39,087 |
If Jane had a SEP the maximum contribution to her 2007 pension would be $18,587, which only includes the profit sharing portion.
The above example is for a single owner who is either a sole proprietor or single member LLC.
If Jane had an incorporated business, the numbers would change slightly because the self-employment taxes would be paid by the corporation in her W-2. She could contribute the following to her Solo 401(k):
|
Profit Sharing (25% of $100,000) |
$25,000 |
|
Salary Deferral Contribution to 401(k) | $15,500 |
|
Catch-up contribution to 401(k) | $5,000 |
|
Total | $45,500 |
If Jane’s incorporated business sets up a SEP only the profit sharing portion, or $25,000 in this case, could be contributed to her pension plan.
