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SEP, SIMPLE, or Solo 401(k): choosing the small-business plan

Three plans, three philosophies: maximum simplicity, employee inclusion, or maximum capacity. The right one falls out of four questions about your business.

Key takeaways

  • Three small-business plans express three philosophies: simplicity, employee inclusion, or maximum capacity.
  • Four questions about the business decide which one fits, and the answer usually falls out rather than being chosen.
  • All three can hold alternative assets, so the plan choice is about contributions and administration, not the menu.

Small-business retirement plans get chosen by inertia — whatever the accountant mentioned first — when four questions decide the fit better: Who works here? How much do you want to shelter? Whose money funds it? How much administration will you tolerate?

The three, characterized

A SEP IRA is employer-money-only and radically simple: contributions are a percentage of compensation, set year by year — generous in good years, zero in lean ones. Its catch is fairness by design: cover yourself and you generally cover eligible employees at the same percentage. A SIMPLE IRA is built for teams: employees defer their own pay and the employer commits to a modest match or contribution — lighter than a 401(k), friendlier than funding everyone’s SEP, with lower deferral ceilings as the trade. The Solo 401(k) is the capacity king for owner-only businesses: employee deferral plus employer profit-sharing stack toward the highest totals, with Roth deferrals and loan features available — and it ends the day you hire a non-spouse employee.

The decision in practice

Owner-only and maximizing: Solo 401(k), almost regardless of the other answers — especially if leveraged real estate is in the plan (the UDFI angle). Employees on payroll and you want them included affordably: SIMPLE. Variable income, no employees or few, and allergic to paperwork: SEP — you can even decide after year-end. Expecting to hire soon: weigh the Solo 401(k)’s expiration date now rather than converting under deadline later.

Self-directed, whichever you choose

All three can be self-directed at a custodian that supports alternative assets — the account chassis differs; the rules of the road don’t. Contribution limits and eligibility details shift with tax years, so confirm current figures before committing — and when the choice is genuinely close, an hour with a plan professional is cheaper than a year in the wrong chassis. We can help you scope it.

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Educational only. This page is general information, not individualized investment, legal, or tax advice. Rules depend on your account type, transaction, tax year, and circumstances — consult a qualified professional.