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Senior Retirement Tips :: Solo 401K
Solo 401K: Identifying the Benefits of a Solo 401K
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There's now a retirement savings plan for the self-employed masses - the solo 401(k). Entrepreneurs and self-employed freelancers may love the joy of work flexibility and increased income, but it's hard to deal with the stress of not having a traditional retirement savings plan.
Most people who are self-employed rely on IRAs or investment accounts, but since the amount of money you can put into an IRA has a cap or limit, it's not always the best solution. However, there's a new solution - the Solo 401(k) which is designed for sole proprietors who want to focus on their long-term retirement goals.
How a Solo Can Help You Save More
The biggest benefit associated with a Solo 401 account is that you can save more tax-deferred money then you can with an IRA. In fact, you're eligible to defer up to 100% of your pretax income as long as you don't exceed the $15,500 limit. On top of that, you can make a business-based contribution from your business of up to 25% of your personal income or paycheck.
Who Benefits the Most from the Solo Account
The people who will benefit the most from this new type of 401(k) account are business owners who generate a lot of cash with their business, but maybe don't have a business that can be sold once they retire.
For example, a consultant or designer may not be able to sell their business once they retire, but they can save their excess income now with a Solo account.
The Investment Options with the Solo-Style 401(k)
Solo 401's allow you to choose from a range of individual bonds, funds, stocks or gold. Instead of limiting you to just mutual funds, you'll find you can make your own investment choices. However, changes to most plans are subject to fees.
The Risks Associated with Solo
The biggest fear associated with putting money into a Solo plan is that it will no longer be accessible in the event of a personal or business emergency. However, just like corporate or traditional 401(k) plans, contributors are allowed to withdraw or borrow funds when your plan allows it.
Most plans require you to pay back the withdrawal within a certain period, pay interest and meet certain withdrawal requirements (e.g.: buying a house, medical emergency and other situations).
Solo 401 Restrictions
The biggest restrictions on Solo 401(k) plans is that you can't have any employees that work for you, other than your spouse. Also, the accounts must be established by December 31 of a tax year to eligible for that year.
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SeniorRetireTips.com :: Solo 401K