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Complete contribution flexibility – You decide each year
whether to contribute and how much to contribute. |
|
Higher contribution limits – Your tax-deferred contributions
can be up to three times as much as what's allowed under some other
types of retirement plans. |
|
Easy set-up and inexpensive to maintain – Unlike larger
401(k) plans, there are no complicated administrative requirements
to bother with. |
|
Consolidation convenience – You can consolidate assets from
your traditional IRA or other retirement plans into your
Self-Employed 401(k) .
|
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Access to cash via the 401(k) loan option - You can get a
loan of up to the lesser of $50,000 or one-half of your
Self-Employed 401(k) account balance. The loan can be used for any
purpose and the loan is tax free and penalty free as long as it is
paid back on time. |
Any type of business with no employees, can establish an individual
401(k) plan – generally referred to as a Self-Employed 401(k) , or Solo
401(k) . The
business can be brand new or old. It can be a sole
proprietorship, LL.C, partnership, or corporation.
Each Self-Employed 401(k) must be set up no later than December 31, to
be eligible for tax deductions for that tax year...
Just because your business is a one-person administration, doesn’t
mean you can’t have a self-employed 401(k) plan of your own. A Solo
401(k) plan allows a self-employed
business owner with no other
employees other than a spouse to participate in a structured
retirement plan.
Any sole proprietor, partnership, corporation, or S Corporation
qualifies for a self-employed 401(k) plan. If you own a
business , you
can contribute the lesser of $42,000 or 100% of total compensation
into a Solo 401(k) plan. Self-employed
business owners 50 years or
older can take advantage of a catch up provision that allows an
additional $4,000 of contributions per year. Participants can also
defer a maximum compensation of $14,000 plus 25% of total profit
sharing into the plan.
A self-employed 401(k) plan like the Solo 401(k) allows high
contribution limits, relaxed rules, and virtually no administration,
including costly discrimination testing. If you previously held an
IRA or other 401(k) plan before starting your own
business , you can
rollover into a Solo 401(k) . You can also select to decrease or stop
contributions completely at any time.
Keep in mind that the eligibility requirements for having a
self-employed 401(k) plan are quite strict. It’s not widely offered by
most investment companies and those that do offer it provide limited
investment options. And once you add a single employee outside of
your spouse, you must convert to a traditional or SIMPLE 401(k) plan.
Related Articles:
Roth IRA Advantages
Roth IRA Basics
Roth IRA FAQ
401k Retirement Plans
Self Employed 401k
Solo 401(k) - 2
Solo 401(k) - 3
