Understanding Solo 401(k)s for Self-Employed Individuals The flexibility and control a solo 401(k) offers can help the self-employed put away more money than traditional or Roth IRAs allow and enjoy certain tax benefits.
by Derreck Long
S aving for retirement is some - thing many people put off until later, but that’s a big mistake. A 2018 Federal Reserve report found that nearly one-quarter of Amer - ican adults don’t have a pension or any retirement savings. For self-employed individuals and small business owners, it can be even harder to save for retirement. It’s important not only to save but also to put your money to work in appropriate investment vehicles. One option is a solo 401(k) qualified retirement plan, which allows self-employed individuals and small business owners to save retirement
WHO’S ELIGIBLE? Before you get started, it’s import - ant to understand the eligibility requirements to open a solo 401(k). A solo 401(k) is a retirement account designed for self-employed individ - uals or small business owners with no full-time employees other than themselves and their spouse. There are no restrictions on age or income. ADVANTAGES OF A SOLO 401(K) One of the most popular features of a solo 401(k) is that it allows you to have checkbook control over your retirement funds. Checkbook control is the ability to write checks
funds with pretax contributions. This type of plan gives you the opportunity to save significant amounts of money each year—and also provides certain tax benefits. In contrast to a solo 401(k), a regular 401(k) is a type of retirement account sponsored by an employer. When you save a percentage of your paycheck, the company makes an employer contribution, which often matches the employee contribution up to a specified percent. With a solo 401(k), you can make contributions as both the employer and the employee.
34 :: INVESTOR REVIEW :: JUL-AUG 2023
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