What's the difference between 401k vs SEP?

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Larry McClanahan, Financial Advisor

@LarryMcClanahan • 06/10/15 This answer was first published on 06/10/15. For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.

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The primary difference is that an employee can make salary deferral contributions through payroll to a 401(k) plan, while a SEP-IRA can only accept employer contributions.

A few other differences include:

- Between employee contributions (including “catch-up” for age 50+) and employer matching/profit sharing, more can be contributed to a 401(k) plan than a SEP-IRA.

- 401(k) plan can have a vesting schedule for employer matching and/or profit sharing contributions. SEP-IRA is 100% immediately vested.

- 401(k) may include loan provisions. No loans are permitted from a SEP-IRA.

- 401(k) may include hardship distribution provisions. No such opportunity with the SEP-IRA.

- SEP-IRA is less complex and less costly to administer.

I hope that helps.

SecondHalfPlanning.com

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