“…you can make very little self-employed income and basically defer it all, which you can't do with the SEP-IRA. This gives you that added flexibility which is especially beneficial for those who have some self-employed income as secondary income and want to get the most tax advantages. For example, if you made $15,000 of eligible compensation, you could sock all $15,000 of it away with a Self-Employed 401(k), but only $3,750 with a SEP-IRA.”To me, this is the most noteworthy difference between the two plans - the potentially higher contribution limits. Both accounts are tax-deductible and tax-deferred, so I can see how the additional $17,500 would be a big draw for the 401(k). However, I personally don't plan on being able to contribute more than 25 percent of my salary for retirement anytime soon, so the potential may be lost on me. Perhaps this will change in the future, but for now, I don't think I'll reach the 25 percent limit.
SEP-IRA Vs. Self-Employed 401(k)
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