Solo 401 K Plan: Why It Is Ideal for Independent Doctors
The Solo 401 K Plan is an ideal retirement plan for independent doctors or physicians. If you are a medical practitioner who works as an independent contractor, you understand the need for a retirement plan. The Solo 401 k lowers your taxable income and enables you to build up retirement funds through high contribution limits and almost limitless investment capability.
Advantages of the plan
Want to know more? Here are a few advantages:
- It is a qualified retirement plan, just like hospital-sponsored plans
- Sense Financial’s plan is IRS-approved, complying with the different rules and regulatory standards of the IRS
- You can contribute to the plan on a tax-deferred basis
- You can also contribute Roth funds to the plan and invest tax-free
- The Solo 401 k plan has some of the highest contribution limits. You can lower your taxable income and grow your retirement quickly.
- If your spouse is also employed by your self-employment business, they can also participate in the plan
How does it work?
If you are eligible for a Solo 401k plan, you must establish the plan by the deadline in order to contribute for that particular calendar year.
Your independent contractor work as a medical professional qualify you for the plan. You cannot have any full-time employees besides yourself and potentially, a spouse, to qualify.
Your self-employment business will be the adopting business of the plan. The plan requires an employer to adopt the plan, and your contributions will be based on your compensation from the employer, i.e. yourself.
And the contribution limits are singularly high. You can contribute up to $51,000 for the year 2013. This limit is for plan holders who are under the age of 50. However, if you are 50 years old and above, you can contribute up to $56,500, due to the additional $5,500 catch-up provision.
The plan offers higher contribution limits because it is structured for two types of contributions. You can contribute as both employee and employer since you are both in self-employment. Added together, the employee and employer contributions combine to result in the high contribution limit.