Gyroscopic Investing

Can anyone explain the differences between a SEP-IRA, a SIMPLE IRA, and an Individual 401(k)? 

Is one better than the other if you're self-employed, and you are your only employee?

As always, I will discuss with a professional eventually, but I like to get opinions from others ahead of time, so that I have questions and some knowledge before paying for the consultation.

Thanks!

There are many -- too many for me to remember off the top of my head!  But a few:

In terms of maximizing contributions, I believe 401(k) > SEP > SIMPLE.

SIMPLEs restrict withdrawals/rollovers until an account has been open for at least 2 years.

401(k) funds can be accessed at 55 1/2 versus 59 1/2 for SEP/SIMPLE.

You cannot make Roth contributions to a SEP or a SIMPLE.

Etc.

Many differences, indeed.  Two main points that I can contribute:

1. The individual 401K has much higher deductible contribution limits than traditional IRAs ($17,500 + $5,500 if over age 50, plus profit sharing up to the $50K limit).  I'm not sure about SEP IRAs.

2. There are different rules for each type of account for withdrawing money early for hardships, first home purchase, higher education costs etc.

WiseOne wrote:
1. The individual 401K has much higher deductible contribution limits than traditional IRAs ($17,500 + $5,500 if over age 50, plus profit sharing up to the $50K limit).  I'm not sure about SEP IRAs

I think that with a SEP the contribution limits are the highest, if you are your own employer because you can go as high as $50K or 25% of your income (whichever is smaller). 

I think you also more investment options with a SEP (i.e., they tend to function like normal brokerage accounts in that you can buy whatever you want, vs the other options which tend to limit you to mutual funds). 

AdamA wrote:I think that with a SEP the contribution limits are the highest, if you are your own employer because you can go as high as $50K or 25% of your income (whichever is smaller). 

While the contribution limits are higher for the SEP, you can contribute 100% of your income to a solo 401(k) up to $17,000 or so.  Maybe more if you are "old".

So you would need to make above $70,000 or so before the contribution limits of the SEP exceed the solo 401(K).

Anything you would want to know about SEP's & Simples could be found in IRS Pub 560:

http://www.irs.gov/pub/irs-pdf/p560.pdf

At the same site you can find 401K info as well (do a search). 

One thing you want to be aware of is that there are various rules for the employee AND the employer (if you are self employed and have
employees).  I believe the rules for yearly reporting are much more complicated for a 401K.  Also there are various rules for termination which
may require filling out forms as well.  As a self employed person with no employees (I was for about 25 years until retirement), I suspect
you wouldn't want to do a 401K.  I suspect the contribution limits to a SEP would be more than  enough to suit you without all the
extra filing burdens.  If you ever want to contribute more or hire employees, you could always start a new plan.
Norm