“Recession” is one of the most impactful words that you are likely to hear in your life. Its impact is far beyond the stock market, affecting the employer as well as the employee at several different levels. If you are a small business owner or a self-employed individual, recession could harm you in a similar capacity, starting with fewer projects, shrinking budgets, and heightened competition. However, it doesn’t mean that you will necessarily struggle, depending upon your preparation for such challenging business environments. Self employed 401k is the first step towards building a healthy financial foundation. It is a retirement solution that targets specific needs of small business owners, self-employed individuals, and sole proprietors.
3 Key Features of a Self Employed 401k Plan
- Higher contribution limits: Self employed 401k plan offers annual contributions of up to $53,000 along with catch-up contributions of $6,000 for senior citizen in 2015.
- Freedom to invest: Unlike regular retirement plans, it allows investing in real estate, stocks, bonds, tax liens, mortgage notes, precious metals, and even private business funding along with a bucket of alternative investment options.
- Loan feature: Self employed 401k allows you to borrow from the retirement plan, with maximum borrowing limit of $50,000 or 50% of the overall account balance. It is available at a low interest rate (prime rate plus one percent), with a payback period of five years.
How Do These Features Benefit Small Business Owners And Self-employed Individuals?
- Build a large retirement nest: With higher contribution limits, you are able to build a large retirement fund and have access to sufficient funds during retirement.
- Use the investments to assist your business: With the freedom to make your investment choices, you can make investments that can benefit your business, though investing directly into your business is prohibited. Let us take an example of a coffee shop that operates right next to your gas station. Investing in that coffee shop will offer direct returns from its sales along with indirect returns in the form of higher number of customers or cars at your gas station. Further, you can have a fellow business owner invest into your business or do vice versa. However, take caution to not engage in a prohibited transaction and consult a qualified tax attorney when in doubt.However, take caution to not engage in a prohibited transaction and consult a qualified tax attorney when in doubt.
- Permanent credit availability: Self employed 401k allows you to borrow from the retirement plan and offers stable credit option during struggling periods. It becomes even more critical under the current market conditions when banks have further scrutinized their lending process.
On top of these features, the self employed 401k offers flexible contribution options, Roth contributions, easy administration, checkbook control, and tax-deferred growth opportunities. It is time to add some extra security to your business as well as financial life with a Solo 401k retirement plan.
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