Solo 401k for Entrepreneurs

Written by , February 14, 2011

Solo 401k for EntrepreneursOne of the perks of working for some companies is the ability to make use of a 401k plan. Entrepreneurs and self-employed individuals have often missed out on these investment opportunities, but they don’t have to there are ways to take advantage of going out on your own.

Starting a solo 401k for entrepreneurs sets the stage for retirement planning. It also provides a little safety net for future finances. The investment benefits of a solo 401k make it something every small business owner and entrepreneur should consider.

Here is some advice on the benefits for investing in a Solo 401k:

  • Higher contribution limits. Retirement plan options for self-employed individuals caps out at 20% of the yearly income for contributions. A Solo 401k offers two contribution avenues that will allow retirement balances to build up at a much faster rate – either 100% of the first $16,500, or up 20% of self-employment income.
  • Tax free loans. Self-employed individuals can access the funds in their Solo 401k using the fund as the collateral. This could allow the company to make that needed expansion or even consolidate outstanding debts without getting a penalty from the government for accessing the funds early.
  • Shifting funds. The balances of other retirement accounts can be moved into the Solo 401k. These monies will also be eligible for the loans and any other benefits available to the investor.
  • Easy set up process. Most of the Solo 401k funds can be set up with minimal hassle. The amount of initial investment will also be minimal compared to some retirement funds.
  • Administration is less expensive than other funds. Traditional 401k investment options can be expensive to maintain. The smaller Solo 401k is designed to be affordable to the small business owner.
  • The higher limits mean lower taxes. The more money that you can invest in the retirement accounts, the lower the taxes will be that you pay in April.

  • There are some negative points to a Solo 401k:

  • Not everyone can participate. Only sole proprietors with NO employees can participate. Contract labor that does not work more than 1,000 hours in a year does not count against you.
  • Loans will cost money. Borrowing from a solo 401k does not come free. Although there will be no charges by the government, most funds will charge a fee for servicing the loan. There will also be some interest that will have to be paid back. Each loan manager will determine the fees associated with the loans.
  • The creation of the Solo 401k opened up an amazing opportunity for the entrepreneur. Because the investment provides two contribution methods, you can put away more tax-deferred money each year. You will be able to reach your financial goals at a faster pace. You will also be in a position to save more money on taxes each year.

    Understanding the benefits of the Solo 401k for entrepreneurs may be the very incentive you need to begin investing in your financial future.

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