As a self-employed professional, you have numerous benefits afforded to you. You get to be your own boss, you set your own schedule, and you make all of the profit. However, the self-employed path comes with inherent difficulties including tax obligations and not having much to fall back on when times get tough.
Thankfully, solutions such as a Solo 401k retirement plan exist in order to help the self-employed worker enjoy benefits unique to their situation. Solo 401k plans provide excellent tax benefits and loan flexibility. These retirement plans allow solo entrepreneurs, freelancers, and independent contractors to reap retirement benefits that other plans designed for self-employed individuals do not even come close to.
In this article, we will break down the benefits of a Solo 401k plan and discuss the factors you should consider when selecting a Solo 401k provider.
How Does a Solo 401k Retirement Plan Work?
With a Solo 401k plan, you are able to contribute to the retirement fund as both an employer and as an employee. This enables you to enjoy multiple benefits including:
- Unmatched Tax Deductions. Because you can contribute to your retirement plan as an employer and as an employee, you can enjoy huge tax benefits. The maximum total contribution limit is $57,000 dollars per year (max of $19,500 for employee contributions and max of $37,500 as an employer. Those aged 50 or older can contribute an additional $6,500).
- Option for Roth or Traditional Contributions. With a Solo 401k plan, you can choose to make after-tax contributions if you elect to use a “Roth” Solo 401k, or pre-tax contributions if you opt for the “Traditional” Solo 401k.
- Loan Availability. In difficult times, self-employed individuals have few options available for help. Therefore, a Solo 401k enables contributors to take out loans of up to $50,000 or up to 50% of the plan’s value when needed.
What Should I Look for in a Solo 401k Provider?
There are a number of factors that should be strongly consider before selecting a Solo 401k provider. A few of these considerations are:
- Cost of Plan. Any additional fees can be a huge deterrence to a Solo 401k plan. Some of these fees can include trading costs and AUM or Assets Under Management fees.
- Plan Management Considerations. Does your plan offer an easy-to-use online service to make changes and manage your contributions? If not, you may want to look elsewhere.
- Available Support. Many plans offer different support options such as phone support, chat support, and email support. Depending on your needs, you may consider a plan that offers comprehensive support options that allow you to receive help whenever you need it, in whatever way works best for you.
- Ability to Customize Plan. You’ll want to ensure that your plan allows you to make changes and choices that will most benefit you. Your investment options and the ability to take out loans are just two of the many considerations you’ll need to make as far as flexibility and customization of your plan goes.