Personal finance is a matter of extreme importance, yet it is among one the most ignored subjects in the U.S education system. According to a study done by the National Foundation for Credit Counseling in 2013, nearly 40% of the American adults rated themselves a C, D, or F for their understanding of personal finance, signaling a great danger for the financial well-being of average Americans. How would you grade yourself when it comes to personal finance? If the answer resembles the above group, don’t you worry we got your back.
If you are a small business owner or self-employed individual looking for a retirement plan, small business 401k plans such as Solo 401k offer the best investing opportunities. A solo 401k retirement plan comes with higher contribution limits, alternative investment options, participant loan, and flexible contribution deadlines.
Fund Your Small Business 401k Retirement Plan
After creating a Solo 401k account, the first step is to fund your retirement plan, using one of the methods discussed in this section.
- Transfer in-kind or in-kind transfer: With a transfer in-kind, you can move your existing 401k assets to a Solo 401k plan without the need of liquidating your assets, which could help you save money in brokerage or processing charges involved in liquidating of stocks, mutual funds, and other investments. Further, it will be a tax-free transfer, with minimum hassles and quick processing. However, not all plans can accept in-kind transfer, so check with your plan provider in advance.
- Cash transfer: A cash transfer is different in terms of liquidation, involving liquidating all the assets before the transfer. It is rather effort taking and might even involve additional brokerage charges in selling stocks or mutual funds. Cash transfers are not taxable just like in-kind transfers.
- 60-day cash rollover: Among the available Solo 401k funding options, 60-day cash rollover requires more diligence on your end. Your existing 401k provider will distribute the assets as well as cash against your name and you will be required to deposit these to your Solo 401k within 60 days. In case of failure, you might have to pay 10% withdrawal penalty, if you are below 59 ½ years, along with annual tax charges for the distribution.
- Annual cash contribution: Last but not least, you can fund your small business 401k account with annual cash contributions. The IRS permits annual cash contribution of $53,000 to a Solo 401k account along with catch-up contributions worth $6,000 for individuals above 50 years. You can make these contributions until the annual filing date or even after that with extensions.