If you are self employed and you are looking to put away money for your retirement and that of your spouse then solo 401k plans are the best way to go. These are a fabulous idea and give you the leeway to decide how much you will put in and when you will make the contribution. There is a deadline for setting up the plan which is December 31 or if you have incorporated your company the fiscal end year is your deadline. This plan works really well for people who make good money from their business and are able to put in large amounts of money towards their retirement. In addition, if you are a freelancer, a consultant in one field or another or an independent contractor, this plan may work for you.
Even though this is a great idea, there is a potential downside to setting up solo 401k plans. The main one is that your business cannot have employees if you are to stay on this plan. However, should your company grow and the need arise for employees you will need to get a traditional 401k plan so that you can include your employee contributions as well.
When it comes to solo 401k plans you will need to make sure that your contributions are turned at the proper times. In addition, you may need to hire an experienced administrator to fill out the paperwork which can be a bit complicated some times. As your contributions grow you will need to fill out form 5500 once your assets go past the $250,000 mark. You are allowed, depending on how much you make, to contribute as much as $50,000 to this retirement plan.
Not only can the business owner save $50,000 a year but his or her spouse can do the same which makes it possible to save up to $100,000 per year for retirement on solo 401k plans. All of this with pre-tax dollars and the tax deferred until you are ready to withdraw the money in the future. The contributions can come partly from your salary and partly from the business itself. If you are under the age of 50 you can contribute up to $17,000 from your salary every year. That figure goes up to $22,500 if you are older than 50. In addition, the business can provide an additional 25% of your salary into the retirement plan as well. It’s a great way to save money.