Plan owners of the 401k Small Business Retirement Plan have basic things to learn and understand about this retirement account. It is imperative that you find a reputable and trusted plan provider since they will facilitate the process for you. Moreover, good plan providers will help you maximize your retirement savings through qualified investment ventures.
In order to get the most out of the Individual k retirement account for self-employed, new plan participants ought to know the following:
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Maximum Contribution Limit
The 401k Small Business Retirement Plan offers one of the highest maximum contribution limits in the industry. In fact, it is 10 times higher than the traditional SEP. Take note that the higher the contribution limit, the more you can save for your future. Participants who are below 50 years are entitled to a yearly maximum contribution of $18,000 for salary deferral options. Age-qualified participants (50 years and older) are allowed an additional $6,000 catch up contribution. For the profit sharing option, participants can contribute up to $59,000 inclusive of the catch up add-on.
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Rollover to Solo 401k Roth Sub Account
Participants can also opt to rollover to the Roth Solo k sub account where they can choose to make after-tax contribution. The upside of choosing this feature is that you are exempted from tax obligations if you earn from your investments using the Solo k retirement funds.
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401k Small Business Retirement Plan Loan
Plan owners are allowed to borrow money from their retirement account. You can loan up to $50,000 or half of the total plan value, whichever is less. The self-directed retirement plan offers flexible repayment terms where you can repay the borrowed amount within a five year period. Moreover, the loan interest is quite low particularly Prime Rate + 1%. You can use the borrowed amount to pay student loans, electricity bills, and even finance a start-up business.
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Avoid Prohibited Transactions
Although you can benefit from the owner-only 401k, you may also incur charges and penalties especially if you engage in prohibited transactions. According to the Solo k rules, any transactions that are considered illegal will have corresponding sanctions or penalty. One example is making investments and using a recourse loan to solicit financial assistance.
The 401k Small Business Retirement Plan offers myriads of perks and upsides for plan owners. It is essential to know the fundamentals of this plan to maximize its full potentials.
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