Solo 401k Benefits are appealing for many small business owners, sole proprietors and independent contractors. Any business (including sole proprietorship, LLC, corporation, or partnership) with no employees other than the owner(s) may adopt this plan.
A Solo 401k plan offers advantages similar to a Self-Directed IRA LLC (or Checkbook IRA), but without the added steps of hiring a custodian or creating an LLC.
What makes the Solo 401k so popular is that it’s explicitly for small, owner-only businesses. This cost-effective, tax-efficient investment plan offers the benefits of a Self-Directed IRA plan, and includes additional advantages.
What in particular makes the Solo 401k Plan so appealing for self-employed business owners?
Solo 401k Benefits Include:
High Contribution Limits
While an IRA allows only a $5,000 contribution limit (with a $1,000 additional “catch up” contribution for those over age 50), Solo 401k annual contribution limits go up to $59,000 (for 2020). If you spouse generates compensation from your business, he or she can also contribute to the Plan. High limit on contributions is one of the main Solo 401k Benefits!
Roth Sub-Account
People with IRA, who earn high incomes, are disallowed from contributing to a Roth IRA. The Solo 401k plan contains a Roth Sub-Account, to which you many contribute without income restrictions. This sub-account lets you make Roth-type contributions while making significantly greater contributions than with an IRA. Roth feature of the Solo 401k Benefits makes it very attractive to small business owners with high income.
Loan Feature
While an IRA offers no participant loan feature, the Solo 401k allows you to borrow up to $50,000 or 50% of the account value (whichever is less) at a low interest rate (the lowest interest rate is Prime, which is 3.25% as of October 1, 2020). So as a participant, you can easily access up to $50,000 for any purpose, including paying personal debt or funding a business. To learn more about Solo 401k benefits and if this plan is right for you, please contact us today for a complimentary consultation.