Can i contribute to a sep and a 401k

This employer contribution limit varies based on the type of plan. This overall contribution limit includes employee elective deferrals. This affects k plans, where employee deferrals are allowed, but does not affect SEP IRAs, where no such deferrals are permitted. That comes from:. With high contribution limits, SEP IRAs offer a powerful way to provide for your own retirement in the same way that k plans do.

Photo used here under Flickr Creative Commons. Megan Russell has worked with Marotta Wealth Management most of her life. What if they are offered by the same business? Like This Article? Related Posts. August 17th, June 11th, However, you do not have to make contributions every year. During a down year, you may skip saving altogether. A SEP is a very cost effective way to offer a retirement plan for small business owners. This form is provided by the IRS, so its unusual that you are limited in your options when you use it.

However, there is a workaround. You can essentially take the basics of the form and tweak it for your use. Of course, your financial institution must accept the form in order to be eligible. You can work with an attorney or financial planner to help design the form. As detailed above, the Solo k is the far superior option for the self-employed.

Contributing to both plans makes little sense. The only time it may be useful is if you have both a small business and other self-employed income. The conventional wisdom regarding the Solo k vs SEP IRA question is that self-employed people should choose the Solo k because in most cases, the potential tax savings are higher. Solo k s also offer catch-up contributions for people 50 and older as well as a Roth option , which lets you pay income tax now in exchange for tax-free withdrawals in retirement.

Solo k accounts tend to offer a bit more flexibility in investment choices, too, Henry says. Hiring just one employee for your business in the future—beyond your spouse—would eliminate the Solo k as an option. Entrepreneurs who go with an SEP IRA because of potential future hires have another important consideration: All employee contributions must be the same percentage of compensation.

Opening fees and annual fees are often zero. When opening an account, be sure to note minimum investment requirements and investment options.

While SEP IRAs usually have a broader range of choices than k accounts, the choices are more limited than those available in a standard brokerage account. Opening a Solo k may be somewhat trickier and more time consuming. Most major brokerages offer step-by-step instructions on their websites. Solo k plans must be established by the end of the calendar year for you to benefit from the tax breaks for that tax year.

Annual fees, account minimums and investment options can vary more widely in a Solo k plan. With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree.

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