The alternative solution for the SEPt can be cheaper than a Solo 401(k) but it really comes down to contribution limits and the amount of cash flow you can afford to fund into either plan.
The SEP accounts are much cheaper from administrative cost perspective and depending on the type of product you selected for your solo 401(k) - internal investment fees of a SEP can also be much cheaper
Insurance-based products for solo 401(k)s are definitely much more expensive later then straight mutual fund platforms
The main difference will be the amount of money you can contribute to either plan
The SEP is pretty straight forward as a roughly 25% of your net schedule C or self-employment earnings but the Solo 401(k) allows you to contribute the same 25% and an additional employee deferrals of $17,000+ the catch up if you're over 50 years of age
Hope that helps.
Hi Fred, The solo-401(k) is generally a good idea. It sounds like you have a problem with the provider, not the plan. If you have had your plan for a year, it is not time to shop it around. There are many adviser's with low fee structures, and there are certainly a significant number of funds with low fees. Spend a little time finding a reliable adviser and I think you will be happier with your plan. Regards, Angela Thomson
Fred - I agree with all of the above. You should answer the question: How much do you want to contribute on an annual basis. Since the solo 401k has a higher limit, if you are going to take advantage of this, the additional tax savings should more than make up for any costs associated with having a solo 401k versus a SEP. Also, the vendors Donald recommended should have some fair fee structures for you. Take care - Marcus
I agree that if you can find a competitive solo 401k it can be as good or better an option than a SEP. The only thing I would add to the above is that a solo 401k provides the ability to take a loan and make ROTH contributions. A downside is you cannot have any employees other than a spouse. I would look at companies like Vanguard, Fidelity, Sharebuilder and 401kDIRECT, all of which have low cost solo plans built on solid investment platforms.
I'm with Evan; I don't know why the decision to shop around would depend on how long you have had the account, except that if you switched to a SEP you might not be able to have both in the same plan year? I was under the impression that you can have both, but you probably wouldn't want to.
I'll answer the last questions first: You cannot double dip into both the SEP and 401k / Profit Sharing buckets. The 25% of Compensation Employer contribution limit is shared. A SEP has ONLY a Profit Sharing style contribution. There is no employee deferral component like a 401(k). Also a 401(k) plan may allow an addition of the Roth 401(k) contribution. This can be a tremendous benefit long term. Whether or not the SEP would be better than a 401(k) also depends on the compensation level. If Net Profits are $260,312 or over and the owner/Employee is under 50 a SEP would be fine; however if net profits are lower, or if over 50, or if Roth features are taken into consideration the qualified retirement plan would be the viable option.
You mentioned that upon reviewing the fees in your 401(k) that the rates are high. There are different types of fees associated with a 401(k) plan so it is important to understand what they are for and how they compare to industry standards. If you are able to defer more income to reduce taxes, some fees may be worth the additional cost. Please contact me to discuss your specific situation.
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