If you’ve gone out on your own and started a business, you likely did so for the freedom inherent in self-employment. Maintaining independence in your career is wonderful in many ways, but as with all good things, self-employment comes with drawbacks such as lack of access to retirement funds only available to large companies.
Fortunately, there is a retirement fund known as a Solo 401k which is specifically designed to help self-employed individuals overcome this retirement planning hurdle. The plan offers excellent benefits in terms of tax consideration and loan options, and it is important to find a Solo 401k provider that will help you reach your retirement goals.
What are the Benefits of a Solo 401k?
While the benefits of a Solo 401k are many, the three that follow are some of the most tempting:
- Excellent Tax Deductions. In a Solo 401k, you are treated as both the sole employee and the sole employer within your company. Thus, you can contribute to your retirement plan in both capacities. As an employee, you can invest up to $19,500 (for those under the age of 50) with an additional $6,500 dollars in contributions available to those over 50. As an employer, you are able to contribute up to $37,500. This comes to a grand total of $57,000 dollars in contributions available each year to those with a Solo 401k plan.
- “Roth” or “Traditional” Plan Options. When opening a Solo 401k, you have the option to contribute to your fund with “Roth” (after-tax) dollars or “Traditional” (pre-tax) dollars. Depending on the nature of your business and your plans for the future, you may decide to go with either option, and a Solo 401k allows you to make this choice.
- Loans When Needed. It may seem obvious, but savings within a retirement fund should be untouched and allowed to mature until you are of retirement age. However, in uncertain and difficult financial times, single-member companies have few financial options. Therefore, a Solo 401k allows you to take out loans of up to $50,000 dollars if needed.
What Should I Look for in a Solo 401k Provider?
Four main considerations should be at the forefront of your mind when you are deciding on a Solo 401k provider:
- Plan Set-Up and Management. Plan set-up should be quick and straightforward. Ongoing maintenance and management of your plan should be intuitive without confusing software and methods that eat up your time and energy.
- Costs Associated with Plan. Some plans come with what are known as AUM (Assets Under Management) fees. You should attempt to find a plan that doesn’t impose these fees.
- Availability of Support. You’ll want to find a plan that has multiple channels of communication with helpful support personnel. Providers that only allow for one method of communication are often difficult to get ahold of when you need assistance.
- Your provider should offer plans that allow for you to reach your retirement goals, in whichever way you want to.