What Are the Benefits of a Solo 401k?

Setting up a solo 401k is an option that is often overlooked by many individuals. However, if you are self-employed, this type of retirement account can help you in a number of different ways. Here are some of the benefits that you get when setting up a solo 401k account. 

Large Contributions

One of the biggest advantages of going with this type of retirement account is that you can make much larger contributions than you could with other retirement accounts. This can be a huge advantage if you are getting started saving for retirement late. You are allowed to contribute $16,500 of your salary to this type of account. If you are over the age of 50, you can put in $22,000 out of your salary. This is exactly the same as a traditional 401k plan. However, the big advantage comes in the fact that you are the employer as well. As the employer, you will be able to decide how much your business contributes to your retirement account. Therefore, you can put as much as 25% of your annual salary into the solo 401k in addition to your contribution of $16,500. You are currently allowed to put up to $49,000 per year into your solo 401k. If you are over the age of 50, you can contribute as much as $54,500.

In addition to this massive contribution, you can actually set up a solo 401k for your spouse as well. If they are involved in the business, they can be part of the retirement plan. This means that they are also entitled to put away $49,000 or $54,500 per year. This means that between you and your spouse, you could potentially save $100,000 per year for your retirement. When you compare this amount to an IRA, it seems astronomical. With an IRA, you can only save $5000 per year or $6000 if you are over the age of 50. Therefore, you are talking about a difference of nearly $90,000 between you and your spouse.

Tax Break

A solo 401k can be a great way to get a large tax break as well. Every dollar that you contribute to this type of account is one more dollar that you can deduct from your taxable income. Therefore, this can potentially put you in a lower tax bracket and save you some serious money on taxes.

Complete Control

Another big benefit that comes with this type of retirement account is that you can have complete control over it. With the solo 401k, you can be the trustee for your own account. This means that you will not have to work with a custodian in order to maintain the account. With this feature, you will have check book control over your retirement dollars. This presents you with the flexibility to invest in many different types of investments. Therefore, if you do not like being tied down to only the stock market, this can provide you with a great way to diversify.

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