An employer can contribute the lesser of 25% of compensation or $58,000 for 2021 to a SEP IRA. A Solo 401(k) plan allows an owner-only business to contribute 25% of compensation plus an individualʼs salary deferral of $19,500, up to a maximum of $58,000 for 2021. Individuals age 50 or older may contribute an additional $6,500 in salary deferrals in the Solo 401(k) plan. The catch-up contribution does not count toward the overall contribution limit of $58,000.
|FEATURE||SEP IRA||SOLO 401(k)|
|Loan Availability||No.||Yes, up to the lesser of 50% of vested account balance or $50,000.|
|Plan Establishment Deadline||Tax filing deadline, plus extensions.||The end of the tax year for which the deduction is taken.|
|Maximum Eligibility||Age 21 and worked for the employer in three of last five years.||Age 21 and worked one year of service (two years if immediate vesting).|
|Distributions Available||Yes. However, distributions prior to age 59½ may be subject to 10% penalty.||Only if a qualifying event occurs (e.g., plan termination, death, disability). Distributions under age 59½ may be subject to 10% penalty.|
|Annual 5500 Filing||No.||Yes, unless the plan has less than $250,000. Must always be filed in final year.|
|Creditor Protection||Protected up to $1 million in bankruptcy proceedings only; state laws vary.||May be available if plan is deemed an ERISA plan or if plan meets eligibility under state spendthrift laws.|
State and local tax laws may differ from federal tax laws. Stifel does not provide tax advice.
You should consult with your professional tax advisor regarding your particular situation.