Sep IRA versus Solo 401k
A client with an LLC is deciding whether to do a SEP IRA or Solo 401k
I know the SEP rules are that all contributions are pre-tax money.
For the Solo 401k, I know the “employee” contributions can be pre-tax or Roth.
What about the “employer” contribution – does that have to be pre-tax similar to 401k matches or can it be either pre-tax or Roth?
I know the SEP is the only one you can decide to do and/or how much after calendar year-end but before you file the tax returns.
Anything else I should be particularly aware of?
Permalink Submitted by Alan - IRA critic on Mon, 2021-08-02 18:12
Client can contribute more to a solo K than a SEP through elective deferrals (employee contributions), but the solo K matching contributions cannot be Roth, they must be made to the traditional 401k account only.
Permalink Submitted by William Tuttle on Tue, 2021-08-03 11:28
Your second to last paragraph is now incorrect. Under the SECURE ACT effective with the 2020 tax year, a one-participant 401k can be adopted up until the sponsor’s tax filing deadline including extensions. The same deadline applies to employer contributions. However, since employee deferrals require an employee deferral election to occur by 12/31, a one participant 401k adopted after 12/31 can not make employee deferrals.