Solo 401(k)

What is a Solo 401(k)?

If you’re self-employed or run a small business, a Solo 401(k) might be a fantastic retirement savings option for you. Unlike traditional 401(k)s that cater to larger organizations, a Solo 401(k) is designed for business owners who have no employees other than their spouse, making it a suitable choice for freelancers, entrepreneurs, and sole proprietors. But before diving in, let’s unravel who benefits the most from this retirement plan.

Pros:

• High Contribution Limits: As mentioned, the contribution limits here are on the higher end, allowing for substantial retirement savings.

• Tax Benefits: Contributions reduce your taxable income and can lead to significant tax savings.

• Loans: You can borrow against your Solo 401(k) if you need immediate funds, which isn’t an option with many other retirement accounts.

• Flexibility: You have the option to choose between traditional and Roth contributions, providing flexibility in how your money is taxed now or later.

Cons:

• Complexities in Setup: Initial setup and ongoing compliance can be more complex and may require working with a financial advisor or accountant.

• Administrative Responsibilities: Once your plan exceeds $250,000, an annual Form 5500 filing is required, which can add to your administrative responsibilities.

• No Employees: If you hire employees, you’ll need to consider transitioning to a different retirement plan.