Who would be appropriate for an Individual 401k?
The Individual 401k and the SEP IRA have comparable maximum limits, but due to the way the contribution is calculated a self employed individual may be able to contribute more into an Individual 401k versus a SEP IRA at the same income level, therefore maximizing retirement contributions and valuable tax deductions. Here’s how the calculation works. In 2009 and 2010, participants in an Individual 401k can contribute up to 100% of the first $16,500 ($22,000 if age 50+) of W-2 compensation or net self employment income for a sole proprietorship. In addition, a profit sharing contribution can be made up to 25% of W-2 wages or 20% of net self employment income. The contribution limit calculation in an Individual 401k is important because it allows you to potentially save more than a SEP IRA at the same income level. To determine how much you can contribute based on your income use the interactive Individual 401k calculator. Another important distinction between the SEP IRA versus the Indiv
