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Solo 401(k)
A solo 401(k), also known as a self-employed 401(k) or individual 401(k), is a retirement account for self-employed individuals or business owners with no employees other than their spouse.
Benefits of a Solo 401(k)
Solo 401(k) plans offer substantial benefits, including higher contribution limits than traditional IRAs. Participants can contribute both as
an employee and employer, allowing for significant retirement savings. For 2024, the employee contribution limit is up to $23,000
(or $30,500 for those 50 and older, with a catch-up contribution), plus employer contributions up to 25% of compensation, with a total
limit of $69,000 (or $76,500 with catch-up contributions).
Tax advantages are a crucial feature of Solo 401(k) plans. Contributions are made with pre-tax dollars, reducing taxable income in the
current year, and earnings grow tax-deferred until withdrawal. Additionally, Solo 401(k) plans can include a Roth option, allowing for
after-tax contributions with tax-free withdrawals in retirement.
Other Features
⦁ Solo 401(k) plans are easy to set up and administer, with minimal paperwork and low costs.They also offer flexibility in investment choices, similar to traditional 401(k) plans, allowing participants to select from various investment options, including stocks, bonds, and mutual funds.
⦁ Another significant feature is the ability to take loans from the account. Participants can borrow up to 50% of their account balance, up to a maximum of $50,000, providing financial flexibility in times of need.
⦁ Solo 401(k) plans are available to self-employed individuals or small business owners with no full-time
employees other than their spouses. This makes them ideal for freelancers, consultants, independent
contractors, and sole proprietors
⦁ It’s also important to consider that once the account balance surpasses $250,000, these plansnecessitate annual reporting to the IRS using Form 5500. Moreover, given the higher contributions,participants must ensure adequate income to make the maximum contributions.
