401k For the Self-Employed

Basically, a Solo 401K plan is a 401k for the self-employed that has been approved by the IRS. Further, Solo 401k Plan was created specifically for owner-only business whose owners want to save for retirement. Therefore, Solo 401k is for any business type such as sole proprietor, partnership, C Corporation, S Corporation, and Limited Liability Company. The key is to not have any full time common-law employees.

Because Solo 401k Plan is designed for owner-only business, the Solo 401K plan is the retirement account of choice for self employed business owners.  For example, you can borrow from your own Solo 401k plan (commonly known as Solo 401k participant loan). The maximum Solo 401k loan amount is 50% of your account balance not to exceed $50,000. Loan payments are fixed can be made either quarterly or monthly, and the loan term is 5, (10 or 15 years if used for purchase of primary residence). 

Further, Solo 401K allows for high annual contributions. For 2012, the maximum contribution limit is $50,000, and an additional $5,500 known as catch-up is permitted for those 50 or older.

Solo 401K also permits Roth contributions. For 2012 tax year, the Roth Solo 401k maximum contribution is $17,000 plus $5,500 if aged 50 years or older. Therefore, since Roth Solo 401K contributions are not subject to the $250,000 income restrictions, it is quite advantageous.

With a Self-Directed 401K feature, Solo 401k Plan with checkbook control opens your investment options and it’s convenient for making alternative investments such as precious metals (gold, silver), real estate, tax liens, private businesses, etc by simply writing a check. The checking account can be opened at your local bank or at TD Ameritrade, Charles Schwab or Fidelity for those who still want to have dual option to invest in both alternative investments (precious metals, real estate, trust deeds, tax liens, etc.), as well as stocks and mutual funds.  If you would like to open brokerage account with checkbook control contact MySolo401k.net as we have the necessary forms for all three mentioned brokerage firms (TD Ameritrade, Charles Schwab, and Fidelity). In sum, by having checkbook control, with a Self-Directed 401k you will no longer need to pay high processing fees to the custodian or worry about timely making investments.

Solo 401K is easier to administer than 401K for full time employees. For instance, annual filing only applies to Solo 401k when account value exceeds $250,000 (Form 5500 EZ), or at termination.  Other reporting applies when making qualified distributions (Form 1099-R). Some Solo 401k providers will include tax filing option in their service model. Therefore, if you are looking for this type of service, make sure that before you Open Solo 401k the Solo 401k provider offers this service option.

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>


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