I may need someone to explain like I am 5.
I have an Scorp where I am the only employee. To make things easy let’s say my K1 is $100k and my W2 income is also $100k. I have an SEP and I contribute the max which is $25k.
From my understanding, the SEP is pre-taxed (meaning I write them off the year they are contributed)
I have read that I could contribute more to a solo 401k. I’d like to contribute another $10-20,000 to retirement (depending on the years expenses).
My CPA is against the 401k saying it doesn’t have the same tax benefits as a SEP.
From my understanding… I could do around $25k pre taxed (like the SEP) PLUS more money that would be taxed when contributed but not taxed when it is taken out for retirement.
Besides an HSA ($3,000 cap) I am not aware of any way to invest money pre taxed.
What is the best way to invest more money into retirement?
Solo 401k vs SEP, I think my CPA is wrong…
byu/toulou11 intax
Posted by toulou11
3 Comments
solo 401k is better than a sep. but you are getting it a little mixed up. its too late to do it for 2025. but for 2026, you as an employee can contribute up to the max, 24500, either roth or pretax. and then you can do the profit sharing piece of 25% of your w-2 in addition to that.
your cpa might be overly cautious. solo 401k allows employee deferrals up to $22,500 plus employer contributions. consider getting a second opinion, might maximize your contributions.
I used Broad Financial to set up a Solo 401K in an emergency (I wanted to use my Roth to fund a distant family relations’ mortgage.) It was then about $900 and I’ve used that 401K for 6 years now. Annual updates to keep up with legal changes are also available. Strata is another company that does solo 401Ks and they have private equity investments available. I’m not saying these are good for you and maybe there are better sources – do your own due diligence, but given the time crunch, one of these might work if you want to do something for 2025.