What are the Benefits of a Solo 401k for Your Business?

For anyone who has a vision of independence and freedom from corporate oversight, self-employment sounds like a dream come true. However, as with all good things, there are certainly difficulties that come with being your own boss. Broadly, as a self-employed worker, you are responsible for all of the work, risk, and tax requirements that come with the venture.

Fortunately, a Solo 401k retirement plan can effectively address many of the tax issues that come with self-employment and provide the solo entrepreneur with a way of reaping retirement benefits that rival those available to bigger corporations.

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How Can a Solo 401k Help Me?

For workers who are going-it-alone, a Solo 401k provides a way to achieve all of the following benefits:

  • Massive Tax Deductions. With a Solo 401k, the individual has access to the largest maximum contributions available to self-employed workers. This is due to the fact that you can contribute to your plan as both an employer and as an employee. Specifically, as an employer you can contribute up to $37,500 per year and as an employee you can contribute an additional $19,500 dollars per year (with an additional $6,500 per year if you are over the age of 50).This comes to a maximum of $57,000 dollars a year in contributions.
  • Option for Tax Deferment. Depending on your situation, you may elect to implement a “Traditional” Solo 401k or a “Roth” Solo 401k. Both options have their benefits; with the “traditional” option enabling you to contribute pre-tax dollars, and the “Roth” option allowing for after-tax contributions.
  • Loan Options Available. Under normal circumstances, it is wise to let your money grow in your retirement account, not touching it unless absolutely necessary. However, for those who are self-employed and have few places to turn when times get tough, a Solo 401k allows for loans to be taken out when needed. In fact, you can borrow up to $50,000 if needed from your Solo 401k account.

How Can I Open a Solo 401k?

Opening a Solo 401k is a short, step-by-step process:

  1. The first step is to select a Solo 401k provider. Over the phone or internet, any broker can assist you in setting up a Solo 401k.
  2. Once you’ve decided on a provider, you’ll need to fill out the required forms and select between a Roth or Traditional option.
  3. You’ll next need to set up your account and begin investing in funds, stocks, and bonds as desired.
  4. After you’ve done all of this, your account is set up. From this point on, you’ll just need to keep track of filing deadlines and fill out additional forms as needed.

Is a Solo 401k the Right Choice for My Business?

If you are the only member of your company, you should strongly consider opening a Solo 401k. Solo 401k retirement plans offer many benefits to individuals and allow small businesses to flourish alongside bigger companies who have access to more resources.

John Peterson

Amanda Peterson: Amanda is an economist turned blogger who provides readers with an in-depth look at macroeconomic trends and their impact on businesses.