Single Participant 401k Rules โ€“ An Investment Guide for Independent Contractors

Single Participant 401k Rules

Single Participant 401k Rules

Knowledge and understanding of the Single Participant 401k rules is the key to maximizing the full potentials of this type of retirement plan. Independent contractors are eligible to establish and open the Individual k account. Thus, those qualified individuals could enjoy the unlimited investment options using their retirement savings. Independent contractors such as real estate brokers and agents, physicians, and the likes may secure their financial future with the help of the Individual 401 k calculator and other resources.

About the Single Participant 401k Rules

There are rules and regulations surrounding the Single Participant 401 k. Here are some of the most essential guidelines especially for independent contractors and new account holders:

  • How much is the annual maximum contribution? The maximum contribution limit for salary deferral as of 2015 is $18,000. Participants 50 years and above could have an additional $6,000 catch up contribution. For the profit sharing component, participants aged 50 years and older could contribute up to $59,000. Plan owners could elect what type of contribution they prefer to make up to the 31st of December of the current year.
  • Who else are eligible to open a Solo k account? Independent contractors or self-employed individuals are not the only ones qualified for the retirement account. Small business owners could also establish the 401k Solo retirement plan. For instance, these are types of small businesses without any full time employees except the owner and his/her spouse.
  • What are prohibited transactions? Account owners could finance investments using their retirement money. However, there are transactions that are considered prohibited and could incur penalties and sanctions. Purchasing a real estate property using a recourse loan or a loan where the account owner is the guarantor is considered prohibited transaction.
  • Can you borrow money from the Self-directed 401k? According to the Single Participant 401k rules, account owners are entitled to a loan option from their retirement plan. Participants are allowed to borrow 50% of the total value of their plan or up to $50,000. Repayment term is in a span of five years with low interest rate, particularly Prime Rate + 1%. Payment is made quarterly or borrowers could also opt for a monthly repayment term.

Self-employed or independent contractors could enjoy numerous financial upsides using their retirement savings through the Solo k plan. Complying with the Single Participant 401k rules is the key to boosting your solo 401 k retirement plan savings today.

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