While the benefits of self-employment are numerous, a solo venture is not without its drawbacks. For one, self-employed individuals are responsible for all of the work and tax requirements as both employer and employee. Additionally, these independent workers are on their own when it comes to retirement planning.
However, one of the greatest benefits available to self-employed professionals is a Solo 401k retirement plan. A Solo 401k allows freelancers, entrepreneurs, and independent contractors the opportunity to enjoy the superlative retirement benefits that are unavailable to those who work for someone else.
Why Should I Apply for a Solo 401k?
For the self-employed, a Solo 401k offers numerous benefits including:
- Outstanding Tax Deductions. Solo 401k plans allow for huge contributions when contrasted with other retirement options available to the self-employed. In fact, as an employee, you can contribute up to $19,500 and, as an employer you can contribute a maximum of $37,500. This comes to a grand total of $57,000 dollars in contributions. The contribution limit as an employee is even higher if you are over the age of 50.
- Option for Tax Deferment. Solo 401k plans offer the option of contributing to a “Traditional” Solo 401k, which allows you to make pre-tax contributions or a “Roth” Solo 401k, which alternatively allows you to make after-tax contributions. Either option may be suitable for you, depending on your needs.
- Loan Options. If times get tough, self-employed workers have few places to turn for help. Luckily, with a Solo 401k plan, the option for taking out a loan of up to 50% of the plan’s value is available to you.
What Factors Should I Consider When Applying for a Solo 401k Plan?
There are a number of Solo 401k plans available, and you should choose one based on your individual needs. Some of the factors you’ll want to consider are:
- If possible, you should seek out a plan that doesn’t include any AUM (Assets Under Management) fees and/or trading costs.
- Ease of Plan Management. Tools such as an intuitive online management system are important things to look for when selecting a Solo 401k plan.
- If you have questions, you’ll want to know that there is someone you can reach out to who will have answers. Excellent user support is an important feature of all retirement plans and should be strongly considered before moving forward.
- It’s important that you enroll in a retirement plan that is going to help you reach your goals. Ensure that your plan provides all of the options you desire such as Roth contributions, loan availability, and investment options.
A Solo 401k plan is a great option for anyone who qualifies. The tax implications, financial benefits, and loan options available with the plans are beyond compare. However, as with any venture, the self-employed individual should strongly consider their plan options before moving forward. So, if you are considering starting a Solo 401k for your business, consider the information outlined above and explore your available options with an eye for detail.