A. If you run your own business, your choice of retirement plan could be complicated, because there are several different choices you could consider - SEP-IRA, Solo-401(k), and SIMPLE IRA. Here is how to decide the best one for you.
1. SEP-IRA
SEP stands for simplified employee pension, it is easy to set up with little paperwork required, best fit for one-person business (it allows employees, but requires you contribute the same percentage for all employees as you contribute to yourself).
You can open a SEP-IRA and fund it up until your next tax-filing deadline including extensions. Your contribution is limited to 25% of net income after deductions - effectively 20% or a 2017 maximum of $54,000.
2. Solo 401(k)
If you want to contribute more, you can consider Solo 401(k), its paperwork is more complex, but you could contribute more, because with Solo 401(k), you can contribute both as the employer and employee.
In 2017, the basic employee limit for all 401(k) is $18,000, with a separate employer contribution of up to 25% of compensation. The maximum for the two combined is the lesser of 100% of compensation or $54,000 (not including the catch up contribution for those over 50).
3. SIMPLE IRA
You can't participate a Solo 401(k) if you have employees (independent contractors are not considered employees). The SIMPLE IRA lets employees decide how much to contribute, with the employer matching up to 3% of compensation.
Combined contribution limits for SIMPLE IRA cannot exceed $12,500, or $15,500 for somone 50 or older. Alternatively, the employer can contribute 2% of compensation to this IRA up to a maximum of $5,400.