Self Employed Benefits

Self Employed 401k

Small businesses, where the only employee is the owner or the spouse in addition to the owner, can open and contribute to a Self Employed 401(k) plan according to the new rules of the Tax Relief Act of 2001. In addition to helping save for the future and the tax breaks that most retirement plans offer, the Self Employed 401(k) plan provides these following benefits:

- Complete contribution flexibility: One can decide whether to contribute every year and the amount of money to be contributed. - Higher contribution limits: The tax-deferred contributions can be up to thrice the amount allowed under some other retirement plans. - Easy set-up and inexpensive to maintain: It does away with problematic administrative requirements that are there for larger 401(k) plans. - Consolidation convenience: Assets can be consolidated from other retirement plans or one's conventional IRA into one's Self Employed 401(k). - Access to cash via the 410(k) loan option: One can get a penalty free and tax free loan if one pays it back in time of up to the lower of $50,000 or half of one's Self Employed 401(k) account balance. One can use the loan for any purpose.

If there is any kind of business without employees then one can open an individual 401(k) plan, also known as a Self Employed 401(k), or Solo 401(k). It can be old or recently started. The business can be a partnership, sole proprietorship, corporation or LLC.

The Self Employed 401(k) plan must be activated before December 31 in order for it to qualify for tax deductions for that financial year.

A business being a one-person administration does not rule out the chance of having a Self Employed 401(k) plan of one's own. A Solo 401(k) plan gives a self employed business owner with no employees other than a spouse an offer to have a structured retirement plan.

Any sole proprietor, corporation, S corporation or partnership is eligible for a Self Employed 401(k) plan. If one has a business of one's own, one can contribute the lower of 100% of total compensation or $42,000 to a Solo 401(k) plan. Self employed business owners who are 50 years old or above get an additional catch up provision that allows an extra $4,000 of contributions every year. Contributors can also submit a maximum compensation of $14,000 plus 25% of total profit sharing to the plan.

Like the Solo 401(k) plan, a Self Employed 401(k) plan allows relaxed rules, high contribution limits, and almost no administration including expensive discrimination testing. If one previously had an IRA or other 401(k) plan before starting one's own business, one can switch to a Solo 401(k) plan. One can choose to reduce or stop contributions at any time.

Eligibility criteria for having a Self Employed 401(k) plan are rather strict. Most investment companies do not offer it widely and those that do offer it have limited investment options. When one adds a single employee other than one's spouse, one must convert to a simple 401(k) plan.

This is not intended to be used as tax or investment advice and for specific information contact your financial advisor.

Self Employed Benefits >> Self Employed Advantages >> Self Employed Disadvantages >> Becoming Self Employed >> Self Employed Business Ideas >> Self Employment Opportunities >> Self Employment Ideas >> How To Become Self Employed >> Best Self Employed Careers >> Self Employed Marketing >> Self Employment Salaries >> Highest Paid Self Employed >> Self Employed Home Support >> Self Employed Accounting >> Self Employment Tax Benefits >> Self Employed Business Deductions >> Self Employed Home Deductions >> Self Employed Loans >> Self Employed Mortgages >> Benefits Of Self Employment >> Self Employed Health Insurance >> Self Employed Insurance >> Self Employed Retirement Plans >> Self Employed 401k