"emailforian[at]gmail.com" <emailforian[at]gmail.com> writes:

- quote -

Why would a sole proprietor with no employees (which is what I draw
from the original post) not use a solo/self-employed 401(k) instead of
a SEP-IRA or SIMPLE plan? A solo 401(k) is (in terms of limits)
basically a SEP-IRA plus an elective contribution of up to $15,000.

The solo 401(k) allows you to to contribute $15,000 plus 20%[*] of
adjusted profit (net business profit minus one-half of the SE tax), up
to a max of around $46,000, though the total contribution can't be any
more than the adjusted profit.

For someone with a net of $7,000, a solo 401(k) would let her
contribute about $6,500 (the "employee deferral" part of the allowable
contribution eats up all the adjusted profit, so no "profit sharing"
part is allowed).

For someone with a net of $37000, a solo 401(k) would let her
contribute about $21877 (which is the $15000 "employee deferral" part
of the contribution plus a $6877 "profit sharing" part of the
contribution).
[*] The literature will say 25%, but for sole proprietors, the figure
you take the 25% of has to be reduced by the amount of the "profit
sharing" contribution itself, resulting in a circular calculation.
When you work through the algebra, it comes out to an effective rate
of 20%. See IRS Pub 560 for confirmation.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

Al wrote:
- quote -

Currently, you are allowed to contribute up to $10k per year to a
SIMPLE IRA plan, and the employer is normally required to match your
contributions up to 3 percent of your gross compensation. Assuming
your wife is self employed and earns 37k, she could therefore
contribute a total of $11,100 per year to a SIMPLE IRA plan. And yes,
the plan is very simple to set up and maintain, and I know that Schwab
(as an example) does not charge a fee to set it up and maintain it.

My self employed wife makes $37,000 and after deductions her net
income is $7,000. Her SEP only allows her to contribute 25%, which
isn't very much.
Would a SIMPLE plan be more advantageous? Does a SIMPLE plan work for
an individual self-employed person.
Is a SIMPLE plan simple?

Thanks,
AL D