Setting Up Your Solo 401k: The Basics

A Solo 401k is one of the best ways for a self-employed person to save for retirement. A solo 401k offers most of the same benefits that come with a traditional 401k with a few more benefits. If you are self-employed, you should take a strong look at the benefits of a Solo 401k.

Why a Solo 401k?

If you are self-employed, you will undoubtedly be looking for tax shelters. This is one of the best shelters available. For one thing, you can contribute quite a bit of your income in pre-tax dollars to the plan. In addition to making the maximum individual contribution, you can even put up to 25% of your company's revenue into the plan through a "matching" function. This is like a form of profit sharing that you can provide to yourself. With this tool, you can save a large percentage of your income for retirement as well as save money on taxes. It might be the difference between what tax bracket you fall in, which can save you a substantial amount of money.

Shop Around

Once you decide to go for a Solo 401k, the first thing you will want to do is shop around for the best plan. There are a plethora of 401k providers out there and none of them are exactly alike. You will want to understand exactly what it is they are offering before you agree to start a 401k with them. One of the main things you will want to compare is the fees that they charge. Many 401k providers charge fees for everything. They will charge you a fee to start the plan, one to maintain it, another one to change anything, and probably charge several other fees as well. When you are providing this plan for yourself, the last thing you want is to spend a lot of money on fees.

Another thing that you will want to consider when choosing a provider is the investment choices and performance. Find out exactly what type of investments they offer and make sure that they mesh with your investment goals. Many 401k plans only have three or four choices to invest in. Make sure that you understand your options before you get started.

Setup Process

Once you settle on a 401k provider, the process to set one up is pretty simple. You will want to make sure that the company understands you need a solo 401k plan and not a traditional one. They will most likely have a separate application to fill out for this type of account. You will have to fill out a few forms and then submit them to the company. They will take care of the rest and get you setup to start contributing.

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