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| | SEP IRA | Solo 401(k)/Solo Roth 401 (k) | SIMPLE IRA | Payroll Deduction IRA | Profit Sharing |
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| Best for | Self-employed people; employers with one or more employees | Self-employed people with no employees other than a spouse | Self-employed people; businesses with up to 100 employees | Self-employed people; employers with one or more employees | Self-employed people; employers with one or more employees |
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| Funded by | Employer; individual, if self-employed | Self or qualified spouse | Employee deferrals; employer contributions | Employee, via payroll deduction | Employers, at their discretion; might be linked with employer’s workplace retirement plan |
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| 2018/2019 EMPLOYEE contribution limits | Contributions for employees made solely by employer (or sole proprietor); limit of 25% of net self-employment income, to a maximum of $56,000 | Lesser of $19,000 or $25,000 for those age 50 and older and 100% of earned income | $13,000; $16,000 for those age 50 or older | Based on employee’s IRA eligibility; maximum of $6,000; $7,000 for those age 50 and older | Based on employee’s IRA eligibility; maximum of $6,000, or $7,000 for those age 50 or older |
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| 2018/2019 EMPLOYER contributions | The lesser of up to 25% of compensation or $56,000 | As both an employee (of yourself) and employer, up to $56,000, or $62,000 with catchup contribution | Mandatory matching contribution of up to 3% of an employee’s compensation or fixed contribution of 2% | N/A | The lesser of up to 25% of employee compensation or $56,000 |
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| Taxes on contributions and earnings | Contributions and investment income are tax deferred; earnings grow tax-deferred | Contributions and investment income in a traditional Solo 401(k) are tax deferred; contributions to a Solo Roth 401(k) are taxable; earnings grow tax-free | Contributions and investment income are tax-deferred; earnings grow tax-deferred | Contributions to a traditional IRA might be deductible; contributions to a Roth are taxable; earnings grow tax-deferred | No taxes on contributions; earnings grow tax-deferred |
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| Taxes on withdrawals after age 59 1/2 | Taxed at ordinary rates | Traditional Solo 401(k) withdrawals are taxed at ordinary rates; Solo Roth 401(k) withdrawals aren’t taxed | Taxed at ordinary rates | Traditional withdrawals are taxed at ordinary rates; Roth withdrawals aren’t taxed | Taxed at ordinary rates |
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| Pros | Simpler for employers to set up than Solo 401(k)s; employers get tax deductions on contributions | Allows small business owners to make both employee and employer contributions for themselves; has higher contribution limits than some other plans | Employees can contribute up to 100% of compensation, up to limit | Easy to set up and maintain; no minimum employee coverage requirements | Employee might be able to borrow penalty-free from vested balance before retirement age (although borrowed amounts are subject to income tax) |
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| Cons | Lower contribution limits for sole proprietor than a Solo 401(k); doesn’t allow catchup contributions; employer contributions are discretionary | More complicated to set up than a SEP IRA; only allows withdrawals before age 59 1/2 for disability or plan termination | 25% penalty on distributions made before age 59 1/2 and within the first two years of the plan; no loans allowed | Employees subject to Roth and traditional IRA eligibility requirements | Vesting period is generally required; no diversification, tied to employer earnings |
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| Good to know | There is a different calculation to determine allowable SEP contributions if you’re both the employer and employee | Employer contributions might be subject to vesting terms | Distribution rules penalize rollovers to another account within the first two years of plan ownership; a SEP IRA or 401(k) might be better for the self-employed | The employer chooses the provider | Contributions are at employer’s discretion and can vary based on salary and job level |
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