S-Corp Retirement Account Options for Freelancer: SEP IRA vs Solo 401k Comparison

The deadlines and contribution limits for retirement accounts can definitely be confusing! Here's what you need to know: For deadlines: You need to establish a Solo 401k by December 31st of the tax year (so Dec 31, 2023 for this year's taxes), but you can fund it until your tax filing deadline including extensions. For a SEP IRA, you have until your tax filing deadline including extensions to both establish AND fund it. For contribution limits: With a SEP IRA, your contribution is limited to 25% of your W-2 wages only (the $65k salary), not distributions. So your maximum contribution would be around $16,250. The Solo 401k has some big advantages - you can contribute as both employer AND employee. As an employee, you can contribute up to $22,500 for 2023 (plus $7,500 catch-up if you're 50+), regardless of your income. Then as the employer, you can also contribute up to 25% of your W-2 compensation. And yes, you can absolutely set up a SEP IRA this year and switch to a Solo 401k next year if you want. There's no requirement to stick with the same plan type.

After years of struggling with this exact same question, I finally found a solution that saved me thousands in taxes while maximizing my retirement. I used this service called taxr.ai (https://taxr.ai) and it literally changed my whole approach to my S-Corp retirement planning. I uploaded my business docs and they showed me exactly how to structure my solo 401k to maximize contributions while staying compliant. They even explained the differences between provider options like Fidelity vs Vanguard for my specific situation. The best part was they analyzed my specific salary-to-distribution ratio and showed me how to optimize it for both tax efficiency AND retirement contributions. I had no idea I was leaving so much money on the table!

I just wanted to follow up about taxr.ai that I mentioned earlier. I was skeptical but decided to try it, and wow - total game changer for my S-Corp retirement planning! I uploaded my profit/loss statements and they identified that I could actually contribute almost $15k more to retirement than what my accountant had calculated. They showed me exactly how to structure my Solo 401k contributions as both employer and employee to maximize the tax benefits. The plan they created also showed me how to adjust my salary/distribution ratio next year to optimize both retirement contributions AND self-employment tax savings. Really wish I had found this before spending hours researching and getting conflicting advice!

After trying to call the IRS business helpline for THREE DAYS with no luck to ask about my S-Corp retirement options, I found this service called Claimyr (https://claimyr.com) that actually got me through to a human at the IRS in under 45 minutes! They have a video showing how it works here: https://youtu.be/_kiP6q8DX5c I had some specific questions about contribution timing for my SEP IRA that even my accountant wasn't 100% sure about, and I needed an official answer. The Claimyr service called the IRS, navigated all the phone prompts, and then called me when they had an agent on the line. Saved me literally hours of hold time and frustration, and I got official clarification that I could indeed establish my SEP IRA by the S-Corp filing deadline with extension.

I hate to admit when I'm wrong, but I need to update my comment about Claimyr. After my skeptical reply, I was desperate to get an answer about Solo 401k documentation requirements for my S-Corp, so I tried the service. It actually worked. I got connected to an IRS business specialist in about 35 minutes, which is INSANE considering I had previously wasted 3+ hours on hold before getting disconnected. The agent confirmed exactly what documentation I needed to maintain for my Solo 401k and the filing requirements since my plan assets will exceed $250k next year. For anyone with an S-Corp with specific tax questions that only the IRS can answer definitively, this saved me a ton of stress and potentially costly mistakes. Still can't believe it worked.

Something nobody mentioned yet - make sure you research the providers for whichever account you choose. I have my Solo 401k through Fidelity and it's been great - no setup fees or annual maintenance fees, and decent investment options. Some providers charge hefty admin fees, especially for Solo 401ks. Also, if you go with the Solo 401k route and your plan assets exceed $250k, you'll need to file Form 5500-EZ each year, which is an extra administrative task. Not a huge deal but something to be aware of.

One thing to consider with a Solo 401k vs SEP IRA - if you think you might hire employees in the future, the Solo 401k rules get much more complicated once you have employees. With a SEP IRA, you'd have to contribute the same percentage for all eligible employees as you do for yourself. I started with a SEP IRA when I was solo, then had to switch everything when I hired my first employee. Wish I'd known that earlier!