Contributions an employer can make to an employee’s SEP-IRA cannot exceed the lesser of:
- 25% of the employee’s compensation, or
- $70,000 for 2025
A one-participant 401(k) plan is sometimes called a:
- Solo-k
- Uni-k
- One-participant k
- Solo 401(k)
The nonelective contributions in a solo 401(k) plan enables it to be comparable to the SEP-IRA:
The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both:
Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit of:
$70,000 in 2025; plus
Employer nonelective contributions up to:
25% of compensation as defined by the plan.
Total contributions to a participant’s account, not counting catch-up contributions for those age 50 and over, cannot exceed $70,000 for 2025.
Therefore, both options may enable you to maximize your contributions up to $70,000 for 2025.
Author: Carlos Nazario CPA JD your TAX-Man. All rights reserved.