Solo 401(k)s Pack a Retirement Punch
If you're self-employed, a solo 401(k) plan is one of many options for building retirement savings with pre-tax money.
In addition to a regular IRA, you're likely eligible to open a SEP (Simplified Employee Pension) or SIMPLE (Savings Incentive Match Plan) IRA. For many self-employed individuals, though, the solo 401(k) is a better choice due to generous contribution limits that allow you to sock away a lot of cash for retirement and save on taxes. If you hold an employer-sponsored 401(k) account, you can make pre-tax, salary-deferral contributions of up to $16,500 in 2009, plus an extra $5,500 if you are 50 or older. With a solo 401(k), however, you can save up to $49,000 this year ($54,500 if you're 50 or older). If your spouse has income from the business, you can double that contribution, to $98,000, or more than $100,000 if you're eligible for catch-up contributions. Since these contributions come from pre-tax dollars, they can lower your taxable income dramatically, thus reducing your taxes. In fact, your solo 401(k) contributions may even get you down to a lower tax bracket. In order to open a solo 401(k) account, you must meet one important requirement: You (or you and your spouse) must be the only employee(s) of the business. If you meet that criteria, your business can be any type of legal entity: sole proprietorship, partnership, limited liability company (LLC) or corporation. Here's why the solo 401(k) may be the best option for you:- Loading Comments...
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