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What is a Solo 401k?

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  • Written By: Garry Crystal
  • Edited By: Niki Foster
  • Last Modified Date: 15 October 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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A Solo 401K is a retirement plan for business owners who do not employ any staff. To be eligible for the Solo 401K plan, you must be the sole owner of the business, although a spouse can also be included in the plan. You must also not be expecting to employ any other staff in your business in the future.

You can contribute up to 40,000 US dollars (USD) a year to the Solo 401K plan. If you are aged 50 or over, you are also allowed a 2,000 USD catch-up contribution. Once you have reached your 40,000 USD yearly contributions, no further contributions are permitted except for the 2,000 USD catch-up allowance.

There are many benefits to the Solo 401K retirement plan. You may be eligible to take out a loan. If you have 100,000 USD already in the plan, you can apply for a 50,000 USD loan. You are also permitted to deduct your Solo 401K contributions from your taxes, and the Solo 401K investment will build on a tax-deferrable basis. Depending on your yearly income, the tax savings when using a Solo 401K are very substantial indeed.

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There is a great deal of responsibility in implementing a Solo 401K plan. A trustee must be designated to hold the assets for you. You are able to act as your own trustee, but this requires a lot of careful planning. A detailed plan must be put into place, with rules and guidelines set out stating how the plan will operate. There are standard plan documents available, and you can take into account the cost of these when setting up your plan.

The Solo 401K is a relatively new retirement plan, and as such, it is not commonly offered by many financial establishments. The best research for the Solo 401K plan at the moment can be conducted through an Internet search. In this way, you should be able to find businesses that offer this type of plan.

Most of the financial businesses that offer this service charge a one-time fee for setting up the account. There will more than likely also be an annual maintenance fee, depending on the variety of service you wish your provider to perform. If you are able to perform some of the services yourself, such as accounts and bookkeeping, then this will considerably lower your annual charge. As with all financial investments, make sure you gain business quotes from a few advisors before investing any of your money.

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