A Solo 401k retirement plan is a unique option reserved for the self-employed. This plan offers many benefits to the self-employed individual, but is it really worth it for you to open one? After all, your business is doing well, you’re profitable, you’re saving lots of money each year; why should you bother changing things up?
In this article, we will detail the benefits of a Solo 401k retirement plan so that you can determine whether or not the plan makes sense for your business.
What are the Benefits of a Solo 401k?
Three main benefits come to mind with the discussion a Solo 401k retirement plan:
- Massive Yearly Savings. A Solo 401k enables you to save huge amounts of money each year. In fact, the plan allows for the most savings possible as compared to other retirement options available to self-employed workers. Specifically, you can save $19,500 as an employee in your business. However, because you are self-employed, you can save an additional $37,500 as an employer. This comes to a grand total of $57,000 per year.
- Flexible Tax Options. With a Solo 401k, you have the option to have your contributions taxed “Traditionally”, meaning the taxes are applied when you withdraw them in your retirement. Alternatively, you can make “Roth” contributions, which means that your money is taxed when you contribute it to your fund. With “Roth” contributions, you can withdraw your money tax-free when you’re ready to retire. Depending on the nature of your business and your predictions for the state of taxes in the future, you have options with a Solo 401k.
- Loan Availability. It goes without saying, but obviously you should let your money grow in your retirement fund and not touch it until you retire. However, when you are self-employed, you have very little help available to you in difficult financial times. Therefore, a Solo 401k allows you to take loans from your fund. You are able to take out a loan of $50,000 or 50% of the plan’s value with a Solo 401k.
How Do I Select a Solo 401k Plan?
The process for starting a Solo 401k is very straightforward. You simply choose a Solo 401k provider, which you can find from a quick internet search. After that, you talk through your needs and options with your provider and determine whether they are offering a solution that feels right for you. A few specific things you’ll want to look for when selecting a plan include:
- Costs Associated with the Plan. If possible, select a plan that has no extra costs. This will save you tons of money in the long run and keep more of your contributions in your account.
- Available Customer Service. Ensure that you will have access to help when you need it. You don’t want to encounter an issue and be put on hold for 5 hours. Your time is too important for that!
- Plan Management. Make sure that the provider’s platform is intuitive and easy to use so that you can manage your plan and make changes whenever you need to.
If you are self-employed, consider contacting a Solo 401k plan provider today to discuss your needs!