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Roth-IRA and SEP-ira and DEFINED BENEFITS questions
- Employer plans, whether SEP IRA, 401(k), or other, are independent of IRAs. So contributions don't affect Roth IRA contribution limits.
- The 2018 combined employer/employee contribution limit for 2018 was $55K; for 2019 it is $57K.
- An individual 401(k) allows (2019) $19K in individual contributions ($25K for age 50+), plus 20% of earnings (up to a combined total of $57K). This will generally exceed the amount that can be contributed to a SEP IRA, which only allows 20% of earnings (also up to $57K).
So if the object is to maximize allowable contributions, the individual 401(k) is usually superior. It's only when you hit $280K in compensation that the SEP catches up to the 401(k).
[I'll explain why the limit is 20% of earnings and not the oft-quoted 25% if requested.]
- A defined contribution plan is a traditional pension plan. It requires actuarial calculations and adjustments annually so that the value of the account is sufficient to meet pension promises. IMHO if it's something one has to ask about, it's too complex to be worth doing. See, e.g. http://www.soleproprietorship.co/definedbenefitplan.html
Comments
- Employer plans, whether SEP IRA, 401(k), or other, are independent of IRAs. So contributions don't affect Roth IRA contribution limits.
- The 2018 combined employer/employee contribution limit for 2018 was $55K; for 2019 it is $57K.
- An individual 401(k) allows (2019) $19K in individual contributions ($25K for age 50+), plus 20% of earnings (up to a combined total of $57K). This will generally exceed the amount that can be contributed to a SEP IRA, which only allows 20% of earnings (also up to $57K).
So if the object is to maximize allowable contributions, the individual 401(k) is usually superior. It's only when you hit $280K in compensation that the SEP catches up to the 401(k).
[I'll explain why the limit is 20% of earnings and not the oft-quoted 25% if requested.]
For small business DC plans generally, see:
https://www.fidelity.com/retirement-ira/small-business/compare-plans
- A defined contribution plan is a traditional pension plan. It requires actuarial calculations and adjustments annually so that the value of the account is sufficient to meet pension promises. IMHO if it's something one has to ask about, it's too complex to be worth doing. See, e.g. http://www.soleproprietorship.co/definedbenefitplan.html