SEP IRA vs Solo 401K: Which is Best for Self-Employed?
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- Опубликовано: 11 июл 2024
- By a Trusted CPA: How to Choose Between a Solo 401K vs SEP IRA
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Both of these plans have extremely high contribution limits, which means you can put some serious money away for your retirement.
And higher contribution limits also mean higher tax benefits, as of 2023, you can put up to $66,000 into either one of these plans and deduct 100% of your contribution from your taxable income.
And if you have a spouse, you may be able to put up to $132,000 into either one of these plans and twice as much tax benefits.
However, there are some critical differences between both plans which may make one of them the better option to you, and that is what we are going to talk about in this video.
Apply to work with me directly: mycpacoach.com/save-on-taxes/
I'm 54 and my wife and I are VERY worried about our future, gas and food prices rising daily. We have had our savings dwindle with the cost of living into the stratosphere, and we are finding it impossible to replace them. We can get by, but can't seem to get ahead. My condolences to anyone retiring in this crisis, 30 years nonstop just for a crooked system to take all you worked for.
I feel your pain mate, as a fellow retiree, I’d suggest you look into passive index fund investing and learn some more. For me, I had my share of ups and downs when I first started looking for a consistent passive income so I hired an expert advisor for aid, and following her advice, I poured $30k in value stocks and digital assets, Up to 200k so far and pretty sure I'm ready for whatever comes.
@@GabrielAnthony-09 That's actually quite impressive, I could use some Info on your FA, I am looking to make a change on my finances this year as well
@@HudsonEthan-00 My advisor is Victoria Carmen Santaella
You can look her up online
@@GabrielAnthony-09 The crazy part is that those advisors are probably outperforming the market and raising good returns but some are charging fees over fees that drain your portfolio. Is this the case with yours too?
Easily the best video I've seen on this.
Thanks Sherman. My business is finally becoming consistently profitable so I have to think about stuff like this.
Happy to help and that's great. I hope momentum continues to build for you in 2024!
You're a great teacher. 👍
Very informative. Thank you for this information.
Excellent video, thank you.
Fantastic video, Sherman!
Great video!
Very informative video and no fluff and no dragging, gets right to the point, and very easy to understand. Very clear and articulate speaker
Excellent explanation and presentation. Definitely saving this video. 🙌🏼
This was a wonderful, informed video about retirement accounts. Wow!!
This is the such a simple and helpful explanation. THANK YOU! 😊
You’re very welcome!
I have been googling this topic forever and this video finally explained the difference to me. Great explanation!
I know the feeling. Glad this helped
Great informative explanation! 🎉
Thank you!
Sherman______The Man________The Myth_________The Legend !!
Really phenomenal presentation. You cleared up so much confusion I had about this. Thanks you!
Great to hear! Happy to help.
@@mycpacoach Do you have a video on where to report contributions to a solo 401k on your tax forms?
Well articulated. Love it.
Thanks, Raj! 🙏🏼
@@mycpacoach I have a question. I tried to schedule some time with your office but I was directed to Tax Hive. Are you guys Tax Hive now? I am not a huge fan of Tax Hive to be honest. Thanks.
We are not Tax Hive but do refer business to them when we do not have room or cannot serve clients.
great explanation
i';ve watched every video on this and this is by far the best explanation and laid out vid i have watched....cheers
Thank you so much!
You're welcome! Glad it helped.
Wow. I am so grateful for this video and breakdown. I've had a SEP IRA for two years now but my CPA and I agree that a switch to solo 401k would be better now that my company has SCorp election and given my aggressive financial independence goals. THANK YOU! Also, subscribed!
I'm so glad to hear that not only you, but your CPA also agrees :-)
Thanks for subscribing!
Great video. I went back and forth and ultimately decided on the SEP. With no employees and already maxing out a 401k with my W2 job, the amount I could contribute to either was the same at 25% of income. The SEP was easier to set up and down the road I can transfer directly to a Roth which broke the tie in favor of SEP.
Thanks so much!! Quick question: When calculating the employer contribution limits of 25% of compensation, would you consider Box 1 (Wages, tips, other comp.), Boxes 3 (Social Security), or Box 5 (Medicare) as the compensation? I'm thinking Box 1 might be a higher amount than Boxes 3 and 5 due to health insurance/benefits run through payroll. Well done and thanks again for everything!
So I can contribute to a Roth 401k using a the backdoor strategy, not only from a Solo 401k, but from my own bank account? I don't understand where the last $18,500 comes from to get into the Roth 401k after the Solo 401k contributions.
good info. my 22 year old is doing doordash on the side and can put entire pay into solo 401k. i get A LOT of side eye and mean comments about that but i dont care.
Great explanation. Can I set up both SEP and Solo?
You could but they would share the same contribution limit.
Great video Sherman! However, I still would like to be cleared regarding the self employment tax (I'm on 1099) which will be calculated after or before either SEP or Solo 401k contribution? Please advise. Thanks
Hi Sherman if i get all of my income from my rental property and I manage them myself. can I use my income from this business to fund my SEP Ira? ty
Question :)
For the roth IRA
Hypothetically speaking i can do the $66k max contribution in a SEP IRA, and i do the $6k roth, when i file my tax will it only be $60k i can deduct now?
Thank you
Roth contributions are not tax deductible. Here is a video that may further your understanding on this: ruclips.net/video/MApR4CIoZPY/видео.html&lc=UgwDi1buB4KSSUrr2sF4AaABAg
Does any of this vary by state?
Can you start a SEP if you haven't worked in eight months?
Do you need to be working to start and /or contribute to your account?
You can as long as you earned income. Remember, SEP contributions is limited to 25% of your business income.
I and 65 years old, and I have a simple IRA at my non-profit. My state taxes distrubution form simple ira's but NOT 401k's. I plan on working at the non-profit for many more years but I would like to begin rolling over the simple ira to roth. Can I do this via the solo 401k to avoid state taxes?
Doubt it.
@@mycpacoach Research it CPA-coach!
I was tpld self employed choose sep because solo 401k is costly
False. Here is a Solo 401K with no fees: www.fidelity.com/retirement-ira/small-business/self-employed-401k/overview
Thank you for the info, I will check it out. @@mycpacoach
Can you have both types of accounts?
Not really. They'd share the same contribution limit.
I earn around 600k annually from self-employment, all through 1099s. I contribute the maximum to my SEP IRA each year, but I'm concerned about the substantial taxes I have to pay at the end of the year. Is there a way to pay taxes now to avoid a large tax bill later? My SEP IRA currently holds 500k, and I am 43 years old. I manage my taxes using TurboTax and don't have a CPA, but I find myself disliking the high tax payments I make. so should i do solo 401k and do backdoor? thought of doing this make my brains explode.
You can certainly prepay your taxes. However, it seems like you are unsure if you have the best strategy. You can use one of my CPAs to help you at mycpacoach.com or binge some of our videos. Here are a couple of videos I'd suggest you watch:
- 30 Business Deductions: ruclips.net/video/cephBVusUS4/видео.html
- How To Prepay Taxes: ruclips.net/video/wgrgBGMX_OI/видео.html
Kind of lost me when you were explaining that you could basically double dip using the solo 401K and then also using the back door Roth to get up to the full contribution limit..having a hard time understanding how you can contribute another 18.5 k under Roth when you already used your income in determining the initial amount in traditional…seems like double counting..I can see doing the back door for the initial 47k amount
Hey, so there is a $66K max for all retirement accounts in 2023. The example I shared is a scenario where a taxpayer could not reach the max through a Traditional account (ex: could only do $47.5K due to income) and therefore could contribute another $18.5K to an after-tax (eventually roth) account to take advantage of the max contribution. Hope this makes sense.
PS - I would not think of this as "double dipping". Instead, I'd look at it as maximizing your retirement contributions.
@@mycpacoach would this be off the initial 100K income in the example or are you saying he could make additional income?..that’s where I got lost..I’m still researching but I def appreciate the info so far
Are you allowed to have both a Roth IRA and a Roth 401K?
Also, wouldn't it make more sense to just put $66000 (or $69000 for the year 2024) directly into a Roth 401K for the tax advantage? Or does reducing the taxable income with a solo 401K offset the greater tax free withdrawal after retirement with a Roth 401K?
@@tahseenkarimGreat question! I would like to know as well.
If i work for an institution and contribute to their 403b and have my own side business .. can I also open a 401k or sep- income is less than 250k in second business so 401k would be better because I wouldn’t have to file that form?.. am i on the right track?.. thanks
You can do both but you’d share the same employee limits ($22,500 in 2023). You’d gain the employer contribution in a Solo 401k which may be very beneficial. I’d suggest getting a tax planner involved for the best outcome.