Best 401 k for Small Business – Must-Knows for Beginners

Best 401 k for Small Business

Best 401 k for Small Business

The Solo 401 k plan is considered the best 401 k for small business for good reasons. Those who are looking for the most lucrative and viable ways to invest their retirement money must know the basics of this pension plan. Even if it is years before your retirement, setting up a 401k is necessary to start and ensure your financial future. In order to have an in-depth knowledge about the Individual self-directed 401k, you must first understand the fundamentals of this retirement plan.

What is the best 401 k for small business?

The Solo 401k is also referred to as Individual 401 k. It is basically designed to establish the retirement assets of the account holder who is a small business owner. The account owner could also be a self-employed individual or could provide proof of self-employment activities. As the ideal IRS-approved retirement policy, the plan can allow higher contribution limit compared to other SEP or IRA plans. This is due to the fact that a single and qualified participant can contribute to his plan as an employer and employee.

Who is eligible?

Those who want to establish the best 401 k for small business must first be eligible to open an account. You are qualified for the self-directed 401k if you have one of the following eligibility requirements:

  • Presence of Self-Employment – It is not necessary for you to give up your full-time job. You can still retain your other jobs as long as you can prove that you have self-employment activities. Participants applying for a Solo 401k plan could be consultants or independent contractors aside from being a full-time employee.
  • No Full-Time Employees for Small Businesses – As a small business owner, there must be no other full-time workers in your company except you and your spouse. Moreover, certain types of employees may be exempted from coverage of the plan. Part-time employees who are under 21 years old, works not more than 1,000 hours a year and union employees are excluded in the coverage.

How much is the contribution limit?

For 2015, the salary deferral limit for plan participants not older than 50 years old is $18,000. However, those who are above 50 years old are allowed to add another $6,000 for catch up contribution. With the inclusion of the profit sharing contributions, the combined total for contribution limits of the best 401 k for small business is $53,000 per year for those not over 50 years old. For plan 50 year old and older, allowed maximum contribution limit is $59,000 per year.

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