When you are the only employee and employer within your company, you get to make the rules. You can decide which days you’ll work, how many hours you’ll work, and, in some cases, where you’ll work.
But retirement planning can be tough when it comes to a solo venture. After all, the revenue generated from your business comes exclusively from your efforts. You don’t have the benefit of a large company providing retirement options.
Fortunately, a solo 401k can help small businesses solve the retirement issues inherent in single member companies.
How Does a Solo 401k Help a Small Business?
Essentially, a Solo 401k is beneficial to single member businesses for 3 reasons:
- Incredible Contribution Maximums. Perhaps the best part about a solo 401k, is that it views the single member business owner as 2 separate people: employer and employee. In fact, you can save a maximum of $19,500 as an employee, and $37,500 as an employer. All told, this comes to $57,000 a year which can be deferred into your retirement plan. This is much more than most retirement plans offer for the self-employed.
- 2 Tax Options. In your quest to research retirement options for your solo venture, you’ve likely come across the terms Roth and Traditional, with regards to the structure of a retirement plan. But what exactly do these terms mean? A Roth plan is one that allows for after-tax contributions. This mean that you pay taxes when you defer money into your Roth account. Then, in retirement, you can make withdrawals without having to pay any taxes. Traditional retirement accounts, on the other hand, impose taxes at the time of withdrawal. Therefore, you pay no taxes when you make contributions, but rather later on, in retirement. A solo 401k enables you to choose between these two options. Whichever route you think is best for your business is entirely up to you.
- As a single-member business, you may, at some point, fall on hard times. When this happens, you’ll have few places to turn for help. Luckily, you’ll have your solo 401k retirement plan available. You are able to take loans from this account of up to $50,000 when needed. Clearly, you should let your money mature as much as possible. But we can’t account for tragedies and unexpected issues in life. When these unfortunate situations happen, you’ll have your retirement plan to fall back on.
Are You Ready to Open Your Solo 401k?
If you’re a single-member business, a solo 401k is arguably the best possible retirement option. Few other plans even come close to the benefits a Solo 401k offers. With the massive contribution limits, flexible tax options, and loan capability; there are few reasons not to choose a Solo 401k for your business.
Any questions that remain regarding your plan can be effectively addressed by a plan provider today. Call now to have a friendly customer service representative walk you through the process of signing up for your Solo 401k.
