For the successful solo business person with no employees, but maybe a spouse, choosing the best option for retirement savings is important.  You want to be able to set aside the greatest amount with the options that are important to you.  People in this category are often consultants or solo professional practitioners of some sort.  The most likely candidate for these highly successful business owners is either the SEP-IRA or the Solo 401(k).

The key distinctions between them are in this chart:

Which will allow the greatest contribution, the SEP-IRA or the Solo 401 (k)?

For the same amount of income, often the Solo 401(k) will generally permit more to be contributed since there are both employer and employee contributions available on a given amount of income.  Also, for the participant age 50 or older, there is the option to add another $5,500 as a catch-up provision that is not available to the SEP-IRA.

What are the reporting requirements?

After the Solo 401(k) has a balance of $250,000, you will have to file the annual 5500 form. There is no similar reporting for the SEP-IRA.

What about administration fees?

In most cases, you will pay a little more in administration fees for the Solo 401(k) than you will for the SEP-IRA.

Will I have the same investment options?

The investment restrictions are essentially the same in both plans.  You will be able, subject to the availability of the custodian, to invest in the most commonly used vehicles including stocks, bonds, mutual funds, ETFs, and cash. Some custodians will allow more exotic assets.

What if I decide to hire employees one day?

Hiring employees is not a problem with either plan as long as you realize you have to treat employees the same as you do yourself.  If you contribute the maximum for yourself, you must do the same for your employees. The Solo 401(k) now becomes a traditional 401(k) and is subject to a bit more administration.

If simplicity is of the higher value to you in your retirement plan, the SEP-IRA will be a somewhat better choice, but if making the maximum contribution to your retirement plan is of the highest value, you will want to seriously consider the Solo 401(k).

Another option available with the 401(k) is the ability to make Roth contributions. In this case, there is no current income tax deduction for the Roth contribution, but the growth is tax free and the eventual withdrawals will be tax free.