The Bureau of Labor Statistics said that as of September 2022, more than 16.5 million people in the United States thought of themselves as independent workers. That makes up more than 10% of all the jobs in the United States. Even if you work for yourself or run your own business, you don't have to give up the tax breaks and future security that come with standard company pension plans. solo 401(k) and SEP IRAs are two great options for regular retirement funds. Both choices are good, but you might find one suits your needs better. It depends on what you want to find.

What Is a SEP IRA?Employee Pension Made Easier Individual Retirement Funds (SEP IRAs) were created by Congress in 1978 to make Individual Retirement Accounts (IRAs) easier for owners of smaller businesses to get. Because a SEP IRA is not the same as a fixed benefit plan, calling it a "pension" might be a mistake. Instead, it lets sole owners and other small businesses give their workers retirement savings accounts similar to IRAs in that they are simple and not taxed.Setting up an IRA through a SEP is easy and can be done at any extensive trading company. Compared to regular solo 401(k), SEP IRAs have almost no overhead costs. SEP IRAs are an excellent choice for sole owners and people who work on a contract basis because they can be offered by businesses with as few as one employees. On the other hand, the tax benefits that come with SEP IRAs are much better than those that come with regular IRAs. In some situations, the tax benefits of a SEP IRA could be ten times or more significant than an IRA's.What Is a Solo 401(k)?Individual solo 401(k) are the same as standard solo 401(k), but they have been changed to meet the needs of individual users. Individual solo 401(k), single-person solo 401(k), and solo 401(k) are all different names for the same thing: a 401(k) plan with only one member.Due to the favorable tax treatment, wives who work at least some part-time hours for their partners may be able to put money into this retirement plan, even though it is only for self-employed people. If you run a small business with only one employee who wasn't your partner, you couldn't put money into the company's 401(k) plan for retirement. This is because you need at least two people in a 401(k) plan for you to be able to join.

SEP IRAs and single solo 401(k) are very different:

A SEP IRA and a 401(k) let you put in up to the same maximum amount each year. However, a few significant differences between the two types of accounts make them different. If you want to determine which plan will work best for your situation, read the fine print. Here are tow critical differences between the two plans:Contribution rates:Even though the yearly contribution limits for both the solo 401(k) and the regular 401(k) are the same, the higher contribution rates of the solo 401(k) may help you save money more quickly. Even though the limits on how much you can put into each plan each year are the same, this is the case. You can save up to 25% of your annual salary in the SEP IRA you set up for yourself. If you have a single 401(k), on the other hand, you can put in as much of your own money as you want as an employee contribution up to the annual cap. Your company will then match up to 25% of your investment. Even if you put in the most, this is what will happen.If you already have a second job or another source of income that lets you save money more quickly, this 401(k) choice will help you a lot. Remember, though, that your 401(k) plan's yearly contribution cap is based on the total amount of money you put into all your 401(k) funds in a given year.Businesses that already have staff members can only offer the solo 401(k) plan if both partners work for the company. In this case, the SEP IRA, an individual retirement account that can be set up to cover many workers, is one of the choices. When planning for your workers, you can choose between the SEP IRA and the SIMPLE IRA, both individual retirement accounts.Roth options:If you want to take advantage of the tax-free growth possible with a Roth plan, you can only do so with a Solo 401(k) or a Roth IRA. Based on the contributor's choice, money can be put into the same 401(k) plan before or after taxes. You're free to go in any direction you want. But the maximum contribution to a Simplified Employee Pension Arrangement (SEP IRA) is much higher than the maximum contribution to an individual plan, and even if you have a SEP IRA, you still have to follow the rules of an IRA.Deciding which is better for you:Self-employed people can save more for retirement by adding a SEP IRA or a single 401(k) plan. When it comes to financial planning, many people find that putting all of their retirement savings into a single 401(k) gives them more freedom, both now and in the future. Both now and in the future, this is true. Because of this, they will have a better chance of saving more money throughout their lives.On the other hand, given your current situation, a SEP IRA might be a better choice for you. For example, if you think your staff will grow soon, you must switch from an individual 401(k) plan to a much more expensive small company plan. This will have to be changed. If you want to grow your business soon, you and your workers may find that a SEP IRA is the best way to save for retirement.If you sign up for a 401(k) or another employer-sponsored retirement plan and put in the highest amount, you can put less into a solo 401(k). In this case, starting a Simplified Employee Pension Individual Retirement Account (SEP IRA) may be best.You can choose from any of the options you have right now. SEP IRA contributions are limited by 401(k) profit-sharing plan contributions. This is true because the two ideas go together. But their total amount can be at most 25% of the total compensation. Because you can't use the benefits of both plans simultaneously, it doesn't make sense to have two different plans. Choose something, and then stick with it. You can always adjust things afterwards.

Calculate your earnings and more:Individual solo 401(k), SEP IRAs, SIMPLE IRAs, and profit-sharing plans are all tax-advantaged ways to save money that sole proprietors and business owners who only hire themselves, their partners, and their wives can use. Profit-sharing plans and SEP IRAs are other ways to save money without paying taxes. A maximum amount can be put in each year, and each plan choice has a different set of benefits. With this easy-to-use tool, you can figure out how much more money you could have put into your 401(k) in 2008 if you had been self-employed instead of working for a company with a profit-sharing, SIMPLE, or SEP plan.Conclusion:Even though the yearly investment limits for a SEP IRA and a solo 401(k) are the same, single owners and other people working alone may benefit more from a solo 401(k) than a SEP IRA. Single solo 401(k) have much higher savings rates than standard solo 401(k). However, only single owners, married couples, and business partnerships can join these plans. Another advantage of the solo 401(k) over the SEP IRA is that you can put money into it from a Roth account.