Know your Retirement Accounts. The Simple, SEP and Solo 401k

Retirement Accounts Simple, SEP and Solo

Being aware of the different types of retirement accounts that are available to you is important to get the most out of your retirement and retirement planning. The accounts that are available to most employees are your typical IRA and 401k with Roth and Traditional kickers. However, your account options are much more plentiful if you are self employed. Beyond the typical Roth and Traditional IRA/401k self employed persons have a Simple IRA, SEP IRA and Individual 401k available to them.

While being self employed gives you a few more retirement account options you for the most part these other options function very much like a traditional IRA.  With that in mind let's talk about these other options and if you have any questions about these types of accounts and if they will work with as a self directed account feel free to contact us anytime.

Simple IRA

Functions much like a traditional IRA. The primary difference is the contribution limit. The following is the contribution limit for a Simple IRA:

An employee contribution equal to 100% of your net earnings from self-employment, up to $12,000 for 2014 ($14,500 if you are 50 or over). Plus…
An employer contribution equal to 3% of your net earnings from self-employment.

FYI, net earnings is your revenues, minus your expenses, minus your deduction for one-half of your self-employement tax.

SEP IRA

Very similar to a traditional IRA, the main difference between the two is the contributions you can make. 2014 contributions for a SEP IRA are as follows:

You can contribute whatever the lesser of the two happens to be
25%  of your net earnings from self-employement or
$52,000

Again, net earnings is a bit different than you may think but it is basically calculated as… revenues minus expenses minus the deduction for one-half of your self-employement tax and the deductin for contributions to SEP IRA.

One more important thing to note about a SEP IRA is that you cannot take any deductions out before you are 59.5 without being penalized.

Individual 401k

This is also referred to as a solo 401k or a self employed 401k. This plan is much like a 401k with an employer. The difference between a solo 401k and a regular employer 401k is that you are allowed to make a contribution in behalf of the employee and in behalf of the eomployer. How does this work? You are allowed the following two contributions:

The employee contribution of 100% of your net earnings from self employement, up to $17,500 for 2014 ($23,000 if you happen to be 50 or older) 

An employer contribution of 25% of your net earnings from self employment.

Another thing that makes the solo 401k such an attractive plan is the ability to have it in the form of a roth account.

If you are interested in a 401k with roth option. You need to be aware that only the employee contribution can be counted as a roth contribution. The employer contributions have to be made as a traditional contribution (tax deffered).

Summary

There are many different retirement account options available to a business owner. While each one of the mentioned options can be quite extensive the overall idea has been conveyed hopefully in a way that gives you the an idea that will work best for you. Typically, the best option available to you is the one that is going to allow you to contribute the most per year based on your income. In many cases this will come out to be the Solo 401k. One of the downsides to a solo 401k is that not every custodian offers them and they usually require more paperwork. If those things aren't a problem for you then a solo 401k might be the right option for you.

Remember, all of these types of plans are available through a self directed IRA. If you still need futher help or information please feel free to contact us at anytime in order to get the most out of your retirement.

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