What is a Solo 401(k) and how does it differ from a SEP-IRA?

A Solo 401(k) — also called an Individual 401(k) or Self-Employed 401(k) — is a retirement account for self-employed individuals with no employees (other than a spouse). It has higher contribution limits than a SEP-IRA at moderate income levels. **2025 Solo 401k Contribution Limits:** - **Employee elective deferral:** Up to $23,500 (plus $7,500 catch-up if age 50+) - **Employer profit-sharing:** Up to 25% of net SE compensation (adjusted) - **Combined limit:** $70,000 (or $77,500 with catch-up) **Example (net profit $80,000):** Employee deferral $23,500 + Employer share $18,587 = total $42,087. With a SEP-IRA, you could only contribute $18,587. The Solo 401k allows a much larger deduction at moderate incomes. **Key advantages over SEP-IRA:** - Higher contributions at lower income levels due to employee deferral component - Option for Roth 401k contributions - Loan provision (borrow up to 50% of account balance, max $50,000) **Key disadvantages vs SEP-IRA:** - Must be established by December 31 of the tax year (can't set up after year-end) - Form 5500-EZ required annually when assets exceed $250,000 - More administrative overhead

• Solo 401k 2025: up to $70,000 combined (employee deferral + employer contribution)
• Employee deferral $23,500 + catch-up $7,500 if 50+
• Must be established by December 31 of the tax year
• Form 5500-EZ required when assets exceed $250,000
• Higher contribution ceiling than SEP-IRA at moderate income levels