Retirement accounts such as the solo 401k plan, SEP IRA and SIMPLE IRA are popular choices for the self-employed because they are inexpensive to establish, maintain and minimum IRS reporting applies.
While businesses structured as sole proprietorships, partnerships and corporations can qualify to open all three types of retirement accounts (i.e., solo 401k, SEP and SIMPLE), a solo 401k plan cannot be opened by state and local governments or any political subdivisions, tax-exempt organizations or business with full-time employees.
Te following charts compare all three self-employed retirement plan types more closely.
While all three plans can be utilized by the self-employed, the solo 401k plan is more restrictive from an eligibility perspective because it can only be established by owner-only businesses. See the following chart for more on the eligibility requirements for each type of plan.
Plan Opening and Contribution Deadline
The establishment deadline for each plan type is different and contribution types and deadlines also vary. See the following chart for more.
Unlike the SEP IRA and SIMPLE IRA where distributions can be made at anytime, distribution triggering events apply to solo 401k plans. Also, the mandatory 20% federal tax withholding rule applies to solo 401k plans but not to SEP IRAs and SIMPLE IRAs. See the following chart for more.