What is a solo 401k plan? Who provides these and who are they for? How do I get one?

The solo 401 (k is the business retirement plan for the sole proprietor. The solo 401(k) has undergone many changes in the past 3 years. All of the solo 401 (k) changes are beneficial to the lone businessperson. The aim of the changes is to encourage take up of the plans and provide for the retirement time of the self-employed.
The most attractive enhancement is the much bigger tax-deductible yearly threshold. The gains for the sole proprietor is that they can rapidly build up a significant tax-deferred retirement fund at the same time as minimizing their annual income tax payments.
For sole proprietors who want to maximize the contributions to a deductible retirement account these changes are a big improvement. This is because a solo 401(k) allows annual contributions in two parts, doubling the benefits.
In the first place you can add to your fund up to 100% of the first $16,500 of your 2009 earnings or self-employment income. To help people over 50 to catch up this amount is $22,000.
In the second place you can contribute and tax deduct an extra 25% of your salary or 20% of your self-employment earnings. So to put it in numbers your boss pays you $80,000 2009. The maximum tax-deductible solo 401(k) account deposit could be $36,500 i.e. $16,500 + 25% of $80,000.
Then perhaps you earn $80,000 from your single business ownership. If you are over 50 your maximum solo 401(k) funds for 2009 can be $42,000 $22,000 + 25% x $80,000 and $38,000.
If you earn more than $80,000 your solo 401(k) contributions can be even more but there is a cap for 2009 of $49,000, or $54,500 if you turn 50 before the year-end.
The amount you contribute to your retirement fund is flexible. You can put in the maximum during the good years while paring it back during the lean years. It does require lone business people to be proactive in planning for their future however. So remember that nobody is as interested in your solo 401 (k) as you are.

There are a large number of solo 401 (k) plan sellers operating now. There number of providers is growing and it will pay to shop around because they differ in terms and conditions and fees. Many of them specialize in particular occupational sectors too. For more information and a full list go to www.401khelpcenter.com/small_business_index.html.

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1 Comment

  1. Jeff says:

    It’s also worth noting that a Solo 401k also allows for investing in alternative investments such as a rel estate and private investments. To learn more visit us at http://www.mysolo401k.net

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