Firstly, you will pay a 10% withdrawal penalty for closing out your 401k plan early (in this case ‘early’ means before the age of 59 ½).

When you withdraw funds from your 401k plan you will also often find that the withdrawal is taxable.

One of the most common questions that hard-up Americans ask is: “How do I closeout a 401k account?

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Rolling your 401k into a new savings plan As of 2011, the IRS gives you 60 days to make a choice as to what you will do with the funds from your 401k plan before you start to incur taxes and penalties.

You therefore have to make a relatively quick decision.

A SEP-IRA can easily be set up on line with most major brokerage companies, such as Vanguard and funded with a simple electronic funds transfer from your personal or business account. This simplicity is the main advantage over a solo 401K. Rather than limiting contributions to the usual amount of an employee 401K deferral (currently $16,500 per year), the laws allow you to also put in an employer contribution (really all the same money for a sole proprietor), for a total of up to $49,000 per year, exactly the same as a SEP-IRA.

A solo 401K, however, is a more complex beast than a SEP-IRA.

Your two main choices are a SEP-IRA or a Solo 401K. Simplified Employee Pension Individual Retirement Arrangements, or SEP-IRAs allow a sole proprietor to shelter 20% (actually 18.6%, at least until you max out your payroll tax) of your business profit up to $49,000 per year ($50,000 if over 50).

The amount placed into a SEP-IRA is 100% tax-deductible.Finally, you can choose to closeout your 401k plan and withdraw the money.However, there may be taxes and penalties for this as we will see shortly.It turns out you only need 0,840 in income to max out a Solo 401K, but need more than ,000 more in income to max out a SEP-IRA. You can borrow money from a solo 401K but not a SEP-IRA. Inside a Solo 401K, your “employee contributions” (up to ,500) can be designated as Roth contributions. If you’re already maxing out an employee 401K at one job (or make more than 4K), don’t need a loan, don’t want to use Roth options (or convert all your SEP-IRA contributions to a Roth IRA), and are under 50, why not choose the simple and easy option?Here’s a great calculator I found that tells you how much you could put away in each type of plan for your given income. After age 50, you can put K per year into a SEP-IRA. You shouldn’t borrow from either, but at least the option is there in case of catastrophe. SEP-IRAs must be taken into the pro-rata calculation when converting non-deductible IRAs to Roth IRAs. This not only allows you some tax diversification benefits, but also allows you to save more money in a tax-protected manner, since after-tax money is worth more than pre-tax money. Although most states protect IRAs and 401Ks equally from creditors, at least two (MN and SC) give additional protection to 401Ks over IRAs. Yet I have used a SEP-IRA several times and have never opened a Solo 401K. You can always roll the SEP-IRA over into a solo 401K if you change your mind.Or, perhaps you are leaving your employer and you want to know what to do with your retirement savings?