Every day, clients ask how they can get checkbook control of their SEP. While you can set up a SEP CheckBook IRA, the Solo 401(k) is a much better option, as you will see below. It’s a much stronger plan and gives you many more options to maximize your income deferment and investment options.

1 | Reach your Maximum Contribution Amount Faster

A Solo 401(k) includes both an employee and profit sharing contribution option, whereas, a SEP IRA is purely a profit sharing plan. A plan participant under the age of 50 can make a maximum employee deferral contribution in the amount of $18,000. That amount can be made in pre-tax or after-tax (Roth). On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including the employee deferral, of $53,000.

For plan participants over the age of 50, an individual can make a maximum employee deferral contribution in the amount of $24,000. That amount can be made in pre-tax or after-tax (Roth). On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including the employee deferral, of $59,000. A SEP IRA would only allow for a profit sharing contribution.

2 | Catch-up Contributions with Solo 401(k)

With a Solo 401(k), you can make a contribution of up to $53,000 to the plan each tax year ($59,000 if the participant is over the age of 50) in 2015 and 2016. However, with a SEP IRA, the maximum amount that can be deferred is $53,000 since a SEP IRA does not offer any catch-up contributions.

3 | Roth Feature

A Solo 401(k) plan can be made in pre-tax, after-tax or Roth format. SEP IRA contributions can only be made in pre-tax format. SEP IRA contributions can then be converted to a Roth IRA, but the initial SEP IRA contribution must be in pre-tax. In addition, a contribution of $18,000 ($24,00, if the plan participant is over the age of 50) can be made to a Solo 401(k) Roth account directly.

With a Solo 401(k), assuming your plan documents allow for it, you can borrow up to $50,000 or 50% of your account value, whichever is less. With a SEP IRA, the IRA holder is not permitted to borrow even $1 dollar from the IRA without triggering a prohibited transaction.

With a Solo 401(k), you can make a real estate investment using a nonrecourse loan without triggering the Unrelated Debt Financed Income Rules and the Unrelated Business Taxable Income (UBTI or UBIT) tax.