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Does a Solo 401k Plan Really Help Your Business?

Going out on your own is often an overwhelming prospect. The thought of handling all administrative aspects of a business in addition to performing the essential operations does not excite many people.

However, workers are often drawn to the self-employed lifestyle. Being your own boss allows you access to freedom which you simply cannot obtain while working for someone else.

Additionally, self-employed individuals have the ability to start what is known as a Solo 401k retirement plan. This type of retirement plan offers benefits analogous to those available to large companies, and is one of the best ways to overcome the hurdles inherent in a solo business venture.

Best Features of a Solo 401k Retirement Plan

While there are many benefits to starting a Solo 401k plan for your business, there are three points which are often the most tempting:

  1. Massive Contribution Limits. A Solo 401k allows a single member business access to the highest contribution maximums when compared to other retirement plan options for the self-employed. Specifically, the “employee” within your business can contribute as much as $19,500 per year. Additionally, the “employer” can contribute up to $37,500 each year. Because you serve as both employee and employer for your business, you are able to contribute up to $57,000 per year in total.
  2. Two Different Tax Options. There are professionals who have different theories regarding whether Roth (after-tax) contributions or Traditional (pre-tax) contributions are the better route to take for retirement funds. With a Solo 401k, you can choose whichever of the two options feels right for you and your business. There’s no way to tell what taxes will look like in the future when you are ready to retire. So, whatever your predictions are, you can elect to structure your contributions accordingly.
  3. Access to Loans. Your retirement fund will provide you with the most benefit if it is left to mature. However, sometimes disaster strikes and you are left in a particularly tough situation where you need to tap into your retirement fund. This is an excellent safety net to have, as self-employed individuals do not have as many options or resources when circumstances force them to make difficult decisions.

Selecting a Solo 401k Provider

Once you’ve decided that a Solo 401k sounds like a good option for your business, you’ll need to choose a provider. This is an important step in the process, as a good Solo 401k provider can make your life much easier when it comes to your retirement planning. You’ll want to consider, at a minimum, the following factors when choosing your Solo 401k provider:

  • Reasonable or No Cost. If possible, you should select a plan provider who doesn’t impose any extra fees. Even though these costs may seem modest, they will add up to a lot of money overtime, leading to less left over for you in retirement.
  • Straightforward Plan Management. Choose a plan that has an easy-to-navigate platform.
  • Excellent Customer Service. If you have problems, you want to work with a provider who can solve your issues quickly and effectively. Ensure that your plan comes with good customer service and support.

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