Planning for retirement is crucial for any working professional. Unfortunately, self-employed professionals often do not have the same access to retirement savings options as traditionally employed workers. This can make it more difficult to save money for retirement. Thankfully, business owners do have retirement solutions available to them, as long as you know where to look. Opening a solo 401k is one of the best money management solutions to help business owners save for retirement. Find out all about solo 401(k) plans and reasons to invest in a private 401k below.
Small Business Owners Only
Solo 401k plans are available to business owners with no employees. These types of retirement investment accounts have the exact same rules and requirements as traditional 401(k)s. However, they will only cover the business owner and their spouse. In order to qualify for a one-participant 401(k), business owners cannot have other employees to extend 401(k) benefits to. This is important to note, as you may not qualify for a private 401k if you own a business with common law employees. But, it is a great benefit to those self-employed business owners starting to plan for retirement.
Contribute From Both Sides
As a business owner with a solo 401k, you can contribute to your retirement investments as both an employer and as an employee. This is a considerable benefit. Your 401(k) contributions as an employer are tax deductible as a business expense. As an employee contributor, your 401k contributions are taken before tax. That means you save more of your own money from the government in your roles as both an employer and an employee. These contribution advantages of solo 401ks will afford significant financial advantages that you will certainly appreciate when you have your very own wealth engine in retirement.
One person 401k plans afford business owners a much wider variety of investment opportunities to save for retirement. Traditionally, corporate 401(k) plans limit employees to a small selection of mutual funds to invest in. With a self-employed 401k, you can choose your own retirement investments. That opens up your investment options to additional assets, like bonds, real estate investments, precious metals, individual stocks and alternative funds. The broad array of retirement investment solutions you can take advantage of to start saving for retirement is a significant advantage. That should certainly make all business owners consider these financial planning tools when creating their own retirement planning strategy.
Individual 401(k)s have an annual contribution limit of $56,000. Or, if you are a business owner over age 50, you can benefit from an even higher contribution limit of $62,000. Traditional IRA accounts limit employee contributions to just $6,000, or $7,000 for those over the age of 50. This allows self employed 401k plan holders to save much more money for retirement. Ultimately, that is a huge advantage for successful small business owners who want to maintain the same lifestyle after retiring. This is an important feature of solo 401(k)s that is unmatched by other solutions to start saving for retirement.
Private 401k plans are easy to setup. That is a huge advantage to an already busy business owner. Opening a private 401(k) is as simple as making a visit to your local financial institution offering these retirement investment accounts. Just be sure to consider various individual 401k plan providers before settling on one. Some private 401k plans do not charge account setup or account maintenance fees, because they involve so few people. However, other options, like some accounting firms, may still charge these types of fees. Be sure to look for self-employed 401(k) plan providers with no fees to experience the simplest retirement account setup process possible.
Business owners saving for retirement have a more difficult time than other working professionals. Without employee-sponsored 401(k) plans, self-employed professionals are left navigating the retirement investing world on their own. For those individuals, a private 401k could be the best thing to happen to their future financial stability. Solo 401ks are the retirement planning solution for business owners only. They allow you to contribute as both an employer and as an employee and benefit from higher account contribution limits. In addition, they allow you more control over the types of investment opportunities you use to save for retirement. Take advantage of the simple setup process to open your own 401k plan right away.