There are a variety of ways the self-employed can contribute to a pension plan or retirement fund. But, perhaps none are more powerful than that of a Solo 401k. The option to choose a Solo 401k plan has opened new doors for investors looking beyond SEP-IRAs, profit-sharing or money purchase plans. Now small business owners can do even more with their money, thanks in part to the Solo 401k plan’s larger contribution limits and added ability to borrow cash from the plan at an affordable rate.
In addition, alternative investment options, such as real estate and borrowing up to $50,000 or 50% of their account value tax-free and penalty free means single-participant 401k holders can increase their cash flow through both traditional and non-traditional investment methods.
Solo 401k Contributions
In 2013, the Solo 401k contributions limit maxed out at $51,000 or $56,500 if age 50 or older. Additionally, having a spouse on the company’s payroll has its added benefits too. An employed spouse can make elective deferrals to a Solo 401k plan in addition to the business’ profit-sharing contribution; this will allow the business owner to minimize the taxable income and, therefore, his or her tax liability.
Both spouses and business will remain responsible for paying their share of employment taxes on the salary, but the employer and employee contributions can equal up to the maximum of $50,000 for 2012. Since this limit is separate for the business-owner and spouse, they are allowed a combined contribution of up to $100,000 for 2012. And, both individuals could defer an additional $5,500 each year if age 50 or over.
With Roth Solo 401k Contributions, plan investors can opt to make “after-tax” or Roth contributions by using the salary deferral portion of the Solo 401k. In 2013, the salary deferral contribution limit was $17,500 or $23,000 if age 50 or older.
Note: The profit sharing portion of a Solo 401k plan does not allow for Roth contributions.
Lastly, any Solo 401k contributions can be adjusted up or down or skipped completely if business is down for the year. This provides the retirement investor flexibility when it comes to deciding how and when they want to contribute to their Solo 401k plan and that is something all single-participant investors can live with.
- Solo 401k Contributions
- Solo 401k Contribution Deadline
- Solo 401k Contribution Limits
- Roth Solo 401k
- Solo 401k roth
- Individual 401k Roth