Saving up for the future, especially once you have decided to retire, is really important. Now, having a business of your own or you have one-man company does not mean that you will not be able to find the best self employed retirement plan for your needs. One of the highly recommended options that you can take is most definitely opening your own self employed 401 k plan or account.
What is a Self Employed 401 k Plan?
Also known as individual 401k, solo 401k or uni-k, the self employed 401 k plan a type or retirement plan suited for those who are considered to be sole company owners or proprietors. They also do not have other employees. This is also applicable to owners who have family members who also earn from the company.
How Much Should You Contribute?
Contributions are deducted the same way as that of the regular or traditional 401ks. This means that contributions are taken out of your total earnings for the month before being taxed. Now, as for the maximum self employed 401k contribution, your limits will be based on how much your total compensation is after you have deducted half of your self-employment tax and your contributions. You can also use a Solo 401k calculator to help you accurately compute your contribution limits.
Benefits of Individual or Self-Employed 401k You Should Know
This type of retirement plan works best for those who need to save large amounts of money for the future. Since you own the company and you do not have any other employees, there is a large possibility that you will be able to make larger contributions compared to other forms of retirement plans. In simpler terms, you have the ability to save as both the employer, as well as an employee. You can even include your spouse to participate especially if he or she is part of the company and is compensated as well.
Your small business can greatly benefit from this as well, since you will enjoy tax savings; thus helping you earn and save up more money.
As a self employed 401 k plan owner, you will have the flexibility in terms of contributions. As your income increases, you can re-compute your compensation and increase your contributions – thus offering you more chances to add up to your savings and consider different investments in the future.
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