How to Open a Solo 401k Plan
Solo or individual 401K plans are individual retirement plans available to the self-employed and owner-only businesses. These 401K plans are a great opportunity to save for retirement while at the same time providing tax benefits due to the deductions and the ability to borrow from the plans. Here are some tips for opening a solo 401K plan.
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Instructions
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Shop for an investment broker to fully discuss and compare your options and overall benefits from opening a solo 401K plan. These plans are becoming more widely used, but be sure to find someone experienced with these plans that can also act as administrator.
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Research your investment options. Solo 401K investments can include stocks, bonds, mutual funds, mortgage and investment loans, life insurance and annuities, and private placements.
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Determine your retirement goals and the lifestyle you would like to live or continue living. Talk with your plan administrator to determine the amount of contribution you should be making annually.
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Learn the maximum contributions for each year. Laws have been put into place allowing certain contributions, but these may change unless they are extended.
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Contribute as much as you can in employee contributions since these funds are tax deductible. There is also a limit on the amount of contribution as an employer contribution. You can always change or suspend the contributions if necessary.
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Consider rolling over other retirement plans into your solo 401K. Other plans may have stricter restrictions or prohibit any withdrawal without heavy penalties. You may also have more control on return due to the variety of investment options in your plan.
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Make contributions no later than Dec. 31 of the year to enjoy the tax benefits of the plan.
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Tips & Warnings
Contributors who are 50-plus years of age may be able to make catch-up contributions.
Those eligible for this the Solo 401K are independent contractors, incorporated or unincorporated businesses, partnerships with no other employees and limited liability corporations (LLC).
