Here's a pretty good article:
http://www.smartmoney.com/taxmatters/index.cfm?sto ry=20021031

There seem to be 2 main advantages of the Solo 401k:
- Ability to borrow against it
- Ability to make a larger tax-deductible contribution to the plan

JT this is probably what you need to help you. It explains the differences pretty clearly.

http://www.taxalmanac.org/index.php/SEP_IRA_versus _Solo_401k_/_Individual_401k

SEP IRA versus Solo 401k / Individual 401k

Introduction:

Are you still recommending a SEP IRA as a retirement plan to your self employed clients? I'm guilty of that too until I learned about how some of my clients could benefit from the Individual 401k (sometimes called a Solo 401k) as an alternative to a SEP IRA. A SEP IRA is a good choice for some self employed clients, but in other situations an Individual 401k provides a larger contribution / tax deduction versus a SEP IRA

About the Topic:

Individual 401k / Solo 401k plans are available to sole props, LLC and S and C corps. The advantage is in how the contributions are calculated. Also, a client that has an Individual 401k can have a loan, something they can not have in a SEP IRA. For example, I have had a client that left an employer and had a 401k, rolled over their 401k into an Individual 401k and then borrowed $50,000 to finance the startup of his business. There are no income or credit qualifications of getting the loan and interest is paid back into their own 401k.

Contributions SEP IRA versus Individual 401k / Solo 401k

In the example below the client is age 55 will have $100,000 net income in 2006 as a sole prop.

SEP IRA - max contribution would be $18,587

Individual 401k - max contribution would be $20,000 + $18,587 = $38,587.

Before I knew of the benefits of the Individual 401k I would have recommended a SEP IRA and would have left a $20,000 tax deduction on the table.

Not every client can make a contribution greater than the $18,587 permitted in a SEP IRA in this example, but for those clients that can an Individual 401k is clearly more advantageous. Also, a very interesting point is the benefits can be doubled for a husband and wife both working for the business and each with 100k net income would be able to contribute a total of $77,174 to an Individual 401k.

Summary:

An Individual 401k may provide your clients with a greater tax deduction and retirement contribution when compared to a SEP IRA. Also, an Individual 401k allows a loan that can provide a financial cushion or can help finance the startup of the business. I have had clients setup retirement account at this firm and have become knowledgeable about these retirement plans by reading the information on http://www.individual401k.com