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The Small Business Owner Dilemma: 401(k) or IRA?


Many owners with less than 15 employees debate whether to get an individual IRA for themselves or a 401(k) for their entire business. When presented with the differences, most owners see how 401(k) advantages can make it a clear winner:

401(k) IRA
2009 Contribution Limit $16,500 $5,000
Age 50+ Catch-up Amount $5,500 $1,000
Roth Income Limit None $120K*
Penalty-free access Yes, loan to self No

* amount you can contribute starts phasing out at $105K

401(k) plans make it easy to save automatically through payroll deductions and enable optional profit sharing not available with an individual IRA. More important are the additional tax credits and deductions for 401(k) plans that can more than offset the cost of a plan.

Read our overview for more details on how a 401(k) can help.

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