Having a 401K may seem like a pipe dream to self-employed businesspeople. You have to take care of your own business expenses and taxes all on your own, without the support of an employer’s matching contributions to build your financial stability for the future. Yet, you may be surprised to find that you don’t need to be employed by someone else to reap the benefits of a traditional 401K. With the benefits of solo 401K, you can easily set aside funds for your future, even when independently running your own business or side hustle. To learn precisely how a solo 401K can benefit you, see the details below.
What’s a Solo 401K and Why Should I Enroll?
A solo 401K is a type of retirement savings plan designed with sole proprietors, freelancers, and other independent entrepreneurs in mind. Instead of having to rely on the traditional employer-sponsored retirement model, you can take matters into your own hands and secure your financial stability for the future. The solo 401K – also known as the Single(k), individual 401K, and a few other names – is a highly affordable, intuitive retirement program that allows you to:
- Choose your preferred financial institution to take advantage of a wide variety of investment opportunities using a self-directed brokerage account.
- Select either a Traditional or Roth option to reduce your current taxable income.
- Take advantage of 401K loan options, when needed.
The benefits of a solo 401K are astonishingly similar to that of a traditional 401K, giving you the freedom to fund your future by your own accord. With this plan, you take both the employer and employee roles, allowing you to fully maximize your contributions. You can also deduct your contributions and administrative costs as business expenses, helping you further boost your future savings.
Those who qualify for the solo 401K can have a self-owned business of almost any kind, as long as it earns you a consistent stream of annual income. Your independent work does not even have to be full-time, meaning any side business or part-time sole proprietorship can qualify for the solo 401K.
More Information on How the Solo 401K Can Benefit You
Enrolling in a solo 401K retirement savings plan offers tremendous benefits for the sole proprietor. Not only can you experience the immense benefits available in a traditional 401K plan on your own, but you also have the freedom to contribute as much as you want (within limits) annually. Plus, you don’t have to face the stress of enduring yearly nondiscrimination tests performed by the Internal Revenue Service (IRS), relieving you of such administrative headaches.
More specific benefits of the solo 401K include:
- You have the option of making after-tax Roth contributions
- While you’re enrolled in the solo 401K plan, you can accumulate pre-tax investment growth
- You have greater flexibility in contributions than you would with an Individual Retirement Account (IRA)
To learn more about how you can benefit from a solo 401K retirement savings plan, get in touch with a retirement plan provider today.