Looking for the best 401k is one of the most important goals of a business in order to ensure the best benefits for their employees at the most efficient cost. The choice is even more crucial for small businesses as each and every individual is a large part of the organization. For the smallest business with only self-employed owners and no other employee, it is the owner’s benefit to have a dependable 401k. If you find yourself in the similar business model, it is advisable to consider a Solo 401k Plan, as it is the best retirement plan for self employed business owners.
With the recent change of Solo 401k rules in 2001, business owners can now create a Solo 401k fund for themselves and their spouse. The requirements are simple: as long as you have taxable self-employed income with no other employee, you can sign up for a Solo 401k. Your spouse can also make contribution to that 401k if he or she is involved in the same business. This covers small businesses from a small coffee shop to independent freelancers.
But how does the best 401k for small business benefit the owner?
1. Much larger contribution limit:
As of 2014, a Solo 401k plan allows you to make contribution of up to $52,000 a year, or $57,500 per year if you are over 50 years old. This is roughly ten times higher than a traditional IRA. Your spouse may also make the same contribution to the fund if he or she is involved in the business. This is because, unlike an IRA, a Solo 401k allows both employee deferral contribution and profit sharing contribution.
Solo 401k contributions are probably the main benefit that makes it the best 401k for small business, because now business owners are able to invest a bigger part of their income into their retirement fund.
2. Diversified investments of your choice:
Unlike a traditional IRA, a Solo 401k allows its owner to invest in a wider variety of assets, including real estate. This allows you the flexibility to go with the investments with the highest return, or simply spread your fund out into different types of assets and minimize your risks. With a “checkbook control”, you can make the decision as easy as writing a check. With this feature, business owners are now able to take control of their portfolio and essentially their future retirement.
3. Loan allowance of up to $50,000 tax-free:
With an IRA, you cannot borrow even $1 without causing red flags of ineligible transactions. With Solo 401k, you can borrow up to $50,000 or 50% of the fund, whichever is less, and for any purpose. It is your fund after all, and it just makes more sense for business owners who often find themselves looking for capital from time to time.
4. Complete control over your portfolio:
The ability of making the choice of investment and taking out a loan gives you greater control over the fund. Besides, a Solo 401k is very easy to administer, with no annual tax filing required for assets under $250,000. This means you don’t have to hire a custodian and therefore, don’t have to consult and get approval from anyone. The fund is yours and so is any decision concerned with it.
Overall, a Solo 401k is the best 401k for small business because it allows bigger investments and more flexibility for business owners, who can now decide how much to invest and what to invest in.