As an entrepreneur, you are responsible for everything that goes well for your business, and everything that goes poorly. There is nowhere to point your finger when mistakes happen, and there is also no need to share the wealth when things go well.
This dichotomy represents the many benefits and drawbacks of a self-employed venture. Luckily, there are ways in which you can overcome some of the major downsides of a self-employed venture. One such way is through the use of a Solo 401k plan.
What is a Solo 401k?
A Solo 401k is a retirement plan that affords entrepreneurs the ability to achieve excellent retirement savings without the backing a big company. The plan offers a few main benefits such as:
- Big Savings.
In reality, you are obviously just one person. But with regards to your Solo 401k plan, you are both an employer and an employee. As an employee, you are able to defer up to $20,500 into your account. Furthermore, in your role as employer, you can contribute as much as $40,500. Totaling these two amounts together, you can save $61,000 per year.
- Different Taxation Options.
If you talk to ten different people, you’ll probably hear ten different hot takes on how taxes will change in the future. But while none of us can know exactly what taxes will look like 50 years from now, we can prepare accordingly. By choosing between a Roth or Traditional Solo 401k, you have the option to choose how taxes are taken from your retirement account. With the Roth option, your money is taxed as you defer it. This allows you to withdraw money later in life without paying any further taxes. On the opposite end of the spectrum, you can choose the Traditional Solo 401k plan. This option forces you to pay taxes when you withdraw your money in retirement, not when you deposit said money. Which option is best is entirely up to you.
- Loans.
The world continues to throw new curveballs at us every year. In many cases, entrepreneurs have to deal with uncertainty and lack of money all the time. However, the Solo 401k can offer a saving grace in times of great strife. Specifically, self-employed individuals can take out loans of up to $50,000 if they need to from their 401k fund. This can be the difference between staying afloat during tough times, or sinking beneath the waves.
Qualities of a Good Solo 401k Provider
There are a few things you should consider when choosing your Solo 401k provider.
Most importantly, you should find a provider who will be available when you have questions. This means that they offer, at a minimum, the ability to get in touch over the phone and through email.
Furthermore, you should find a plan where you don’t have to pay any excess fees. Some providers will impose extra costs, avoid these plans if possible.
Are you ready to open your own Solo 401k? If so, contact a plan provider right now!
