Plan features |
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Individual 401(k) |
SEP IRA |
| Employer contributions generally tax deductible by business |
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Individual 401(k)
Yes, employer contributions are generally tax deductible.
SEP IRA
Yes, employer contributions are generally tax deductible.
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| Plan expenses generally tax deductible by business |
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Individual 401(k)
Yes, plan expenses are generally tax deductible. If this is your first 401(k) plan and you have 100 or fewer employees, you may also benefit from a tax credit of up to $5000 for the first 3 years. Footnote 1
SEP IRA
Yes, plan expenses are generally tax deductible. Merrill does not charge setup or administrative fees for SEP IRAs. You may also benefit from a tax credit of up to $5000 for the first 3 years. Footnote 1
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| Employer contributions are flexible |
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Individual 401(k)
Yes. Contributions by the business are optional in any given year.
SEP IRA
Yes. Employers have the flexibility to decide whether or not to contribute in any given year as well as contribution amount.
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| Business owners contribute as employees |
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Individual 401(k)
Yes, business owners and their spouses fund their accounts through employee salary deferrals.
SEP IRA
No, contributions are made only by the business.
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| Roth (after-tax salary deferrals) option |
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Individual 401(k)
Yes, a Roth option is available for employee contributions.
SEP IRA
No, a Roth option is not available.
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| Loans and withdrawals are available |
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Individual 401(k)
Yes, loans and withdrawals are available if you choose these features in your plan. Participants may incur tax penalties if certain conditions aren't met. Footnote 2
SEP IRA
No, loans are not available. Withdrawals taken before age 59½ — with certain exceptions — are subject to an additional 10% early withdrawal penalty.
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| Investment choices |
Menu of funds and model portfolios |
Full range of investments |
Individual 401(k)
Funds and model portfolios — selected and managed by Morningstar Investment Management LLC — help take the guesswork out of investing. Footnote 3
SEP IRA
You and your employees can access a full range of investment choices, including stocks, bonds, options, ETFs and well-known mutual funds.
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| Additional IRS filing required |
Sometimes |
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Individual 401(k)
IRS filing is required only when plan assets are greater than $250,000. When that threshold is met, a signature-ready Form 5500 will be prepared for employer review, at no additional cost.
SEP IRA
No. IRS reporting is not required.
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| Contribution limits for employees under age 50 Footnote 4 |
$66,000 |
$66,000 |
Individual 401(k)
The maximum combined business and employee annual contribution is the lesser of 100% of compensation or $66,000 in 2023 per participating employee.
SEP IRA
For all participating employees, contributions are limited to the lesser of $66,000 in 2023 or 25% of eligible compensation (20% of self-employed net earnings).
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| Contribution limits for employees age 50 or older Footnote 4 |
$73,500 |
$66,000 |
Individual 401(k)
For employees age 50 and older, the maximum combined business and employee annual contribution is the lesser of 100% of compensation or $73,500 in 2023 per participating employee.
SEP IRA
For all participating employees, employer contributions are limited to the lesser of $66,000 for 2023 or 25% of eligible compensation (20% of self-employed net earnings). Catch-up contributions are not permitted.
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