|
Friday, 24 August 2007 |
|
Known under many aliases, the solo 401k, or individual 401k, or sole 401k is a single business person’s retirement plan. The income from the business goes towards contributions. With this type of account, the owner of the business should be the only employee. The solo 401k can be accessed by the business owner as well as other employees related to the owner. Once other non-relative employees are added to the payroll-the rules change and the solo 401k may not be available.
To establish an individual 401k, that can entail going to a financial planning firm or an individual financial planner. Establishing a trustee for your 401k account can save a business owner a lot of hassle. Some sole business owners want to take on that responsibility themselves. It may seem like a simple task, but maintaining meticulous records can often land some owners in trouble with government for certain oversights. Solo 401k plans are allowing higher contributions to the plan than many other retirement plans. It is possible for people to contribute more to a solo 401k than they would with IRA accounts; even making less money. I addition to the larger contribution rate, the loan allowance is 50,000 or up to 50% of the total amount. A huge difference from regular employer directed accounts. Solo accounts aren’t completely free and clear of taxes. Contributions are tax deductible, the earnings received are deferred until the money is taken out and Withdrawals are always taxed. There are some set limits placed on specific contributons. Only up to twenty percent of your individual income can be contributed, up to $47,000. That number changes every year. The solo 401k account is a relatively new invention. The influx of small and one person business owners may have precipitated the tax laws to change. Solo 401k’s affords business owners the freedom to contribute a lot of their earnings to a savings plan. Many more private business owners are taking advantage of this saving option as opposed to the SEP or Keogh plans. Solo 401k’s are definitely paying off for them in terms of higher contributions and earnings. |
