Sep IRA vs Individual 401k

SEP which stands for Simplified Employee Pension Plan vs individual 401k which what I currently use today as a small business owner.

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1. SEP Plan Is a Simplified Employee Pension Plan
– Which by definition is supposed to be a simple way to invest

What are the benefits
– You can invest up to 25% of net earning but no more that 58k a year as of 2021 ( buts its only 20%if you have don’t have employees)
– The money you invest can be used to offset your taxes and save you money and the money will grow tax-free but eventually, when you take it out you will be taxed
– This means you can invest a lot of money and have the money grow tax-free

Where can I open one
– You can open one with Vanguard which I recommend the most, its one of the best companies, and its been around for a very long time
– But if you want to be more tech-savvy you can also open one up with M1 finance and directly invest into what I invest in to using the link in the descriptions
– But honest that’s just what I recommend, but you can open one up with any broker, just make sure you trust them and they don’t have any crazy set up fees

What can I invest into
– Stocks, Bonds, Mutual funds, and ETFs
– But also if you get Self Directed SEP you could even invest in real estate
– Be careful playing games with your future though, I recommend index funds or ETFs that track indexes

Cons:
– 20% max with self-employed or one man or woman show business of net earning which means you have to earn a lot more money around 290k to max it, not including what you pay yourself
– There is no ROTH option, so the money will be taxed in the end
– You have to wait until you are 59 and a half to take money out, if you do it before then you will be taxed and also pay a 10% penalty
– You can only contribute business money and not also with your money which sucks also ( funded only by employer plans )

2. Individual 401k plan ( this is designed for Sole PRopriaships business, so one man teams – but you can always have contractors )
– – the cool thing about this account is that you get some of the benefits of a 401k and also get some Roth options as well ( taking money out for buying a house with a penalty up to 10k first house)

What are the benefits?
– Employee meaning yourself, can also invest into their 401k also or Roth 401k account ( meaning I can also contribute up to $19,500 in my personal Roth 401k – while the company put money into my normal 401k
– You can also borrow money from your 401k plan which I don’t recommend but is also an option
– You can invest up 25% of your money but cannot exceed 58k per year

Where can I open one
– For this I recommend vanguard

What can I invest into
– Stocks, mutual funds, index funds, and even bonds

Why I like it so much
– It gives me the ability to get tax deductions yes but to also invest into my Roth option plan and then have all that money tax free
– Eventually roll it over to a normal Roth Ira
– And after 5 years I can begin to that money out tax-free

Tip: you were two hats employer and employee

3. Which one do I recommend
– People with employer that SEP plan probably will work best
– But people with no employees Induvial will work best
– Just make sure to speak to a CPA or call vanguard.

Ps. Keep in mind that vanguard will charge you a dollar amount fee until your account reaches over 50k. Which is fair.

SEP plans are funded by employer contributions alone
Individual allows for both employer and employer to fund the retirement plan

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*Some of the links and other products that appear on this video are from companies in which Tommy Bryson will earn an affiliate commission or referral bonus. Tommy Bryson is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. I’m an Accountant but I’m not your Accountant, always review information with your Accountant/CPA and your Financial Advisor.

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