Are you self employed and have no W-2 employees?
If you are then you should consider an Individual 401k as an alternative to a Simple IRA. Self employed individuals who would like to contribute in excess of the limits of a Simple IRA should consider an Individual 401k since it has higher contribution limits.
- A Simple IRA is easy to set up and has low administrative responsibilities.
- 2017 Simple IRA contribution limit is $12,500 or $15,500 if age 50 or older. In addition there is a maximum 3% employer contribution.
- Relatively low maximum annual contribution limits.
- Loans are not permitted.
What are the advantages of a Simple IRA?
Self employed business owners that have a Simple IRA are able to contribute up to 100% of their income up to the 2017 contribution limits of $12,500 or $15,500 if age 50 or older. As a result, significant contributions can be made into a Simple IRA even at lower income levels. A good candidate for this plan doesn't mind the relatively low maximum contribution limits. Self employed individuals who would like to contribute in excess of the limits of a Simple IRA should consider an Individual 401k since it has higher contribution limits.
- 2017 Individual 401k contribution limit is $54,000 and $60,000 if age 50 or older.
- Tax free loans are permitted with an Individual 401k plan. Loans are permitted up to 50% of the total value of the Individual 401k up to a maximum of $50,000.
- Roth 401k - There is an option to make Roth 401k contributions with the salary deferral portion of the Individual 401k. Contributions into a Roth 401k are not tax deductible, but withdrawals are tax free after age 59 ½.
- Potentially greater administrative responsibilities and administrative fees compared to a Simple IRA.
SIMPLE IRA Calculator
Compare how much could be contributed to a SIMPLE IRA versus an Individual 401k based on your income. Use the Calculator.