Posts Tagged ‘SEP IRA’

Know Your Retirement Accounts: Simple IRA, SEP and Solo 401K (Updated)

Monday, January 29th, 2018

Being aware of the different types of self-employed 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

A 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 are your revenues, minus your expenses, minus your deduction for one-half of your self-employment tax.


Very similar to a traditional IRA, the main difference between the two is the contributions you can make. 2018 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-employment or
  • $55,000

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-employment tax, and the deductions for contributions to a 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 on behalf of the employee and on behalf of the employer. How does this work? You are allowed the following two contributions:

  • The employee contribution of 100% of your net earnings from self-employment, up to $18,500 for 2018 ($24,500 if you happen to be 50 or older)
  • An employer contribution of 25% of your net earnings from self-employment.

Another benefit that makes the solo 401K such an attractive plan is the ability to have it in the form of a Roth account, so all distributions are tax-free.

Finally, 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-deferred).


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 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 further help or information please feel free to contact us at any time in order to get the most out of your retirement.

A Simple Explanation of a SIMPLE IRA

Monday, July 17th, 2017

A SIMPLE IRA stands for Savings Incentive Match Plan for Employees, it’s a type of retirement account for small businesses, and for people who are self-employed. It works like a Traditional IRA, where your contributions grow tax-deferred. When it comes time for retirement, your distributions are taxed as normal income.


While SEP IRAs and SIMPLE IRAs get mixed up sometimes, they’re actually pretty different. SEP IRAs don’t allow the employee to make the contributions, the employer does. A SIMPLE IRA gives the employee more power over their IRA.


What makes a SIMPLE IRA unique is that employers are required to make a contribution on the employee’s behalf. The employers are required to contribute a dollar-to-dollar match of up to 3% of salary or a flat 2% of pay, regardless of whether the employee continues to contribute to the account.

Employee benefits

For an employer to open the IRA, they must have 100 or fewer employees. Those employees must also earn more than $5,000 each. That includes all employees who have worked at any point in a calendar year. The employer also cannot open or have any other retirement plan other than the SIMPLE IRA.

If your employer offers a SIMPLE IRA, you qualify to contribute if you earned at least $5,000 a year during any two years before the plan was set up, and if you expect to earn at least $5,000 this year.

The employer can lower the matching contribution to 1% or 2% of total compensation. But only in any two out of five years that the plan is in effect. In the other three years, the company must make either a 3% match or the 2% flat contribution.

All-in-all, whether you’re a business owner seeking a retirement plan for your employees, or if you’re a freelance employee, this IRA plan might be the answer to your retirement needs.