If you own your own business, you are undoubtedly aware that small-business retirement plans, like SEP and Keogh can sometimes leave much to be desired. The good news is that the Solo 401(k) is making a financial comeback in a big way, and provides enterprising entrepreneurs like you with a wider variety of retirement saving options.
Solo 401(k) Options: New and Improved
You Can Contribute More To Your Solo 401(k) :
Thanks to recent tax-law changes, self-employed business owners can now contribute all (that’s right, up to 100%) of the first $15,000 that they earn, starting this year. If you will be turning 50 and up by the end of the year, your allowed contribution amount increases to about $20,000.
You Can Deduct More From Your Solo 401(k) :
Part of the recent changes is a provision that allows for options that are similar to those found in SEP and Keogh plans. Like with a traditional small business retirement plan, those who are self employed can also now deduct up to 20% of their self-employment income.
Know Before You Invest
You know the saying: if it sounds too good to be true, it usually is. Luckily, the Solo 401(k) option not only sounds good, but for most self-employed business owners, provides a way to accrue greater retirement savings. Before you sign on that dotted line, however, here are a few caveats to consider:
You May Have to Contribute to Employee Accounts
Depending on your individual business circumstances, the new tax law may require that you contribute to your employee’s accounts as well as your own. This is something that corporations have been doing for years, and financial and retirement account planners have extensive experience in helping business owners like yourself handle this type of contribution, so you should plan to meet with yours.
You Must Not Miss the Deadline
The deadline for establishing a Solo 401(k) plan is December 31st and you must have one in place before the start of a new year in order to be eligible for tax deductions.
Explore your Solo 401(k) Options
The importance of meeting with your accountant and personal financial planner before investing in, or deciding on, any financial retirement plan, cannot be stressed enough, particularly if you are a small business owner with employees. Always remember that smart financial planning today leads to a more enjoyable retirement in the future.