If you’re self-employed, odds are you spend much of your 12-hour days ensuring that operations run smoothly. There is probably little time for you to think about the future, when you’re so busy managing everything happening in the present.
But even though it may seem like you don’t have time to do so, you need to start thinking about your retirement plans. This is as true for self-employed individuals as it is for those who work for someone else.
When it comes to single-member ventures, one of the most compelling retirement options is that of the Solo 401k. With the help of plan provider Ubiquity, we’ll discuss some of the benefits of Solo 401k for your business.
Taxes and Solo 401k
Taxes are a huge consideration when it comes to anything dealing with finances. As far as retirement plans are concerned, you essentially need to choose between having taxes taken when you make deposits (known as a Roth plan) or having taxes taken when you make withdrawals in retirement (known as a traditional plan).
Experts disagree about which style of taxation is best, and your individual circumstances may vary. But with a Solo 401k, you have the option to pick either method of taxes as they relate to your retirement account. This way, you can choose whichever method seems best to you.
Contributions and Solo 401k
In your single-member organization, it’s just you. You’re the employee. You’re the boss. You wear whatever hats you need to in order to keep the company running.
Because you act in two main roles, as employer and employee, you can make contributions to your Solo 401k in both capacities. Therefore, you can contribute as much as $57,000 to your Solo 401k account. This number comes from the sum of maximum employee contributions, at $19,500, and maximum employer contributions, at $37,500.
This is the highest maximum contribution limit available to self-employed individuals.
Loans and Solo 401k
No one ever plans to have to take out loans from their retirement account. After all, we all know intuitively that it’s better to let money mature in the account than it is to take it out. But situations like the COVID-19 pandemic have made it abundantly clear that devastating things can happen to businesses in the blink of an eye.
When you are self-employed and there isn’t a large company behind you, you don’t always have many options. There are very few places you can turn during difficult financial situations. For this reason, you are able to take out loans of as much as $50,000, should you and your company fall on tough times.
Conclusion
You have many options when it comes to retirement planning, and it can feel like an unnecessary use of time to sift through all of the available options. But when it comes down to it, every self-employed individual should strongly consider starting a Solo 401k.
These plans are only available to single member companies. Beyond that, they offer outstanding contribution maximums, multiple tax options, and the availability of loans, if needed.
If you are ready to open a Solo 401k, talk to a plan provider today!
