A Solo 401k is the perfect option for self-employed individuals. The plan grants you access to unmatched tax deductions and the option to take out loans during difficult times.
But with so many options available, it can be difficult to determine which provider and plan will best meet your needs. In this article, we will outline the reasons why you should consider opening a Solo 401k and the factors you should consider when deciding on a Solo 401k provider for your business.
Why Should I Set Up a Solo 401k for My Business?
Solo 401k retirement plans are available exclusively to self-employed workers. The plan offers outstanding benefits including:
- Enormous Tax Deductions. With your contributions as both an employer and your contributions as an employee, you can save a grand total of $57,000 per year. This is the largest contribution maximum available to the self-employed.
- Tax Deferral Option. A Solo 401k allows you to choose between making “Roth” or “Traditional” contributions to your plan. The “Roth” option enables you to contribute funds after they have already been taxed, which means you will not have to pay taxes on your withdrawals in retirement. The “Traditional” option is essentially the opposite situation: you don’t pay tax on your contributions up-front, but must pay them later on, when you decide to withdrawal your money.
- Loan Availability. Despite intense planning and our best efforts, sometimes life doesn’t go the way we want it to. For those who go out on their own in business, a difficult financial hurdle can sometimes be nearly impossible to overcome. For this reason, the Solo 401k plan allows you to take out loans of up to $50,000 if needed.
What Factors Should I Consider When Selecting a Solo 401k Provider?
Just as with any business decision, who you select as your 401k provider is not a decision to be made lightly. You’ll want to consider the following when you select your Solo 401k provider:
- Costs Tied to Plan. Some plans will have extra associated costs that can cut into your benefits. You’ll want to select a plan that imposes few, if any, extra fees.
- Plan Adjustment. Easy management of your plan is a must. Ensure that your provider has an intuitive platform that allows you to make adjustments and investments without any extra hassle.
- Customer Support. Your plan provider should be there for you when you have questions. Before moving forward with a provider, you should investigate their customer service to make sure that they are willing to help you, should you ever run into issues.
- Flexible Plan Options. Having the ability to customize your plan is a must. Your provider needs to allow you to choose from a variety of investment options. If this is not an option with a provider you are planning to move forward with, you may want to look elsewhere.
Conclusion
If you are self-employed, a Solo 401k retirement plan is one of the best benefits available to you. The plan offers you excellent tax benefits, options for “Roth” or “Traditional” contributions, and loan flexibility. Just make sure that you pick a Solo 401k provider that will help you reach your financial goals.
