As the sole employer and employee of your single-member business, you have many considerations to make. There are tons of options when it comes to how to structure your business in terms of liability, taxes, and retirement planning.
The focus of this article is on retirement planning. Specifically, we will focus on how a Solo 401k (a unique retirement plan option reserved only for those running solo ventures), is an incredible option for independent entrepreneurs.
How Can a Solo 401k Help Me?
It’s hard to imagine a more compelling retirement plan option than the Solo 401k. Amongst retirement plans available to single-member operations, the Solo 401k is unparalleled. There are three main reasons why this plan is so tempting:
- The Choice Between Roth and Traditional Contributions
In the world of retirement planning, the term “Roth” is thrown around quite a bit. Essentially, Roth contributions are those that are made “after-tax”. Therefore, your money is taxed when you make your contributions, which means when you retire, you can enjoy tax-free withdrawals.
Conversely, Traditional contributions are those that are made “pre-tax”. This means that you do not pay taxes when you make your contributions. Rather, you pay your taxes in your retirement, when you begin to make withdrawals.
There are tons of theories on which type of contributions are preferable. However, it depends largely on the nature of your business, your financial situation, and your belief about how taxes will change in the future.
- Enormous Contribution Maximums
One of the most unique aspects of the Solo 401k is that the plan recognizes you as both an employee and as an employer. This means that you can contribute in both capacities. In fact, you can invest up to $57,000 in total between your employee and employer contributions each year. This allows for excellent tax deductions and incredible retirement savings in the long run.
- The Option to Take Out Loans
The sad reality of the world is that tragedies and disasters are becoming all too common. It seems like the news organizations are reporting a financial downturn every few years. Likewise, natural disasters and even global pandemics have recently affected our financial world.
For single member businesses, there are few options when financial assistance is needed. For this reason, Solo 401k plans allow plan owners to take out loans of as much as $50,000 when needed. Clearly, it makes sense to leave as much money in the account as possible and let it mature. But in some cases, you need the money right now. In these situations, the Solo 401k can be a life saver.
Is it Time for You to Open a Solo 401k?
There are very few reasons why a single-member business wouldn’t want to start a Solo 401k. For most people who are out on their own, this retirement plan makes perfect sense.
If you’re ready to talk to a provider about your retirement planning needs, call today! Plan providers are ready to take your call at any time.