401(k) accounts are great for large companies to have. It gives employees a chance to save a lot of money for their retirement with a very secure plan that will provide many benefits over time. However, what are people who are self-employed, or a business owner with no additional employees other themselves supposed to do? Luckily, there is a solution. There is something that is called a solo 401(k). These work much like a traditional 401(k) account, just on an individual basis. If a spouse contributes to your business, they can be apart of the solo 401(k) as well. This is a great program for people who do not have employees or make their income on a business that they run themselves. They are still able to take advantage of all the benefits that a traditional 401(k), and still be able to have a comfortable amount of money to retire with.
You can set up a solo 401(k) account in two different ways. The first way is just like a traditional 401(k) account. The money that is put into the solo 401(k) account is made pre-tax, and can be invested tax-deferred until the money is withdrawn at retirement. You can only withdraw your money at 59 and 1/2. If you withdraw your money before then, you will have to pay income tax on the money, and you will have to pay a 10% early withdrawal fee. You have to withdraw your money before you are 70 and 1/2.
The second way that you can set up a solo 401(k) account is as Roth solo 401(k). The contributions to your Roth 401(k) account are made on an after-tax basis. While there is no tax deduction available on this type of account like on a traditional account, the money that grows will not be taxed again, even after it is withdrawn at retirement.
Another feature of a solo 401(k) loan is that you can grant yourself a loan form the plan. You can grant a loan that is up to the lesser 50% of the balance. You will not get penalized for getting a loan out of your plan. The loan will have to be paid back with interest in five years. The interest rates are not out of control, so getting a loan will not cost a fortune to pay back.
If you want to receive any tax benefits, you must set up your solo 401(k) by December 31st in the year that you want to receive the benefits for. You can make contributions until April 15th (the tax deadline) of the following year.
You do not have to worry about going to a firm that seems like they do not deal with a lot of 401(k) plans to get a solo 401(k) plan. Many of the major financial brokerages that help large companies with their 401(k) plans also provide solo 401(k) plans as well. Make sure to look around and compare your options to see which is the right one for you.
If you are self-employed, or you have your own business that does not have other employees other than yourself, you can still save for a retirement with many of the same benefits that come along with a traditional 401(k). Saving is easy, and you will be able to retire in comfort.