Every small business owner requires a retirement strategy. Do you own a small business? Probably the idea of retirement planning isn’t as enticing as opening another store for your business. According to a survey conducted in 2014, nearly one-third of the small business owners didn’t want to retire whereas a quarter had no plans for retirement. More than one-third said that they would divide their retirement equally between work and leisure. Does that sound like your plans?
Here are two factors that you must consider:
- You don’t have an employer to set up a retirement plan for you.
- You are not likely to receive any kind of pension during retirement.
Investing in a retirement plan allows you to choose whatever path you want with more confidence.
Solo 401k: A Perfect Match for Small Business Owners
Solo 401k is a retirement plan that allows self-employed individuals and small business owners, without full-time employees, to save money for their retirement. It is important to understand that you qualify for Solo 401k plan even if you are working with your spouse.
What makes solo 401k Special?
- High Contribution Limits: Solo 401k has higher contribution limits than IRA accounts allowing you to contribute up to $53,000 in 2015 (additional $6,000 catch up contributions for individuals above 50 years of age).
- Flexible Investment Options: The flexibility to diversify your investments is the primary advantage of Solo 401k plan. You can invest in real estate, private business, precious metals, and other traditional investment options. In case you have a Roth option, all your investments will grow tax-free.
- Roth Contributions: Traditional Roth IRAs do not allow contributions for individuals that make more money than a certain limit. The Solo 401k retirement plan offers freedom to pay your taxes upfront, regardless of your income. You can contribute up to $18,000 in Roth contributions for 2015 and an additional $6,000 in catch up contributions for professionals above 50 years of age.
- Solo 401k Loan Access: The last US recession (Dec 2007 to June 2009) had a huge impact over small business owners and all the major banks scrutinized their loan access. Solo 401k is here to the rescue. It offers borrowing from retirement plan and you can borrow up to 50% of your retirement fund (maximum limit of $50,000) during financial distress. Solo 401k loan is available at prime rate plus one percent interest rate, which makes it extremely affordable.
On top of everything else, you are free to direct your investments without any intermediary. There is no need to file a return until your account balance crosses $250,000 in value. Solo 401k is a complete retirement solution for small business owners.