Selecting the best investment option for your retirement money can be a complex and difficult task. However, the choice is clear: the Solo 401k gives the greatest advantages to those who qualify.
The Solo 401k Advantages, Features and Benefits
The Solo 401k qualified retirement plan is the ultimate investment option for independent contractors and small business owners who do not employ any full-time workers, with the exception of a spouse.
This retirement plan has gained tremendous popularity among self-employed individuals because of its amazing benefits and numerous advantages over other investment options. The Solo 401k advantages include cost effectiveness and tax efficiency among other benefits.
To give you a better idea of how the Solo 401k is the best option, consider some of its advantages:
Solo 401k Checkbook Control
The Solo 401k plan gives you the power to manage your retirement account freely. As a plan holder, you have the option to become the trustee for your own retirement assets. As the trustee of the Solo 401k plan, you are given “checkbook control” over the trust funds. You assume the responsibility for making investments that will benefit your retirement account. Investing is as easy as writing a check. This flexibility allows you the freedom to invest in opportunities that fit your skills and knowledge without the need of third party custodian consent. This feature eliminates the delays and costs associated with hiring a custodian for your account.
Solo 401k Investment Flexibility
With the Solo 401k plan, you can choose where to invest your hard-earned retirement funds. You may invest in a start-up business, real estate, precious metals, stocks, mutual funds, tax deeds, tax liens and hard money lending. You may choose any investment that you can imagine (except collectibles), and the revenue generated returns to your Solo 401k account.
Solo 401k Contribution Limits
An IRA only allows up to the $5,000 maximum contribution limit (an additional $1000 “catch up” is added to the limit, if the participant is over 50 years old). But with the Solo 401k plan, you can contribute up to 10 times that limit.
The Solo 401k rules specify that any self-employed individual under 50 years of age during the year 2013 is allowed a maximum contribution limit of $17,500. For those 50 years old and above, the maximum contribution limit as an employee is $23,000.
But because you also act as the employer, an additional 25% profit sharing contribution (20% if it is a sole proprietorship or single member LLC) can be added to the limit, making a total maximum Solo 401k contribution limit of $56,500 per year.
The amount of contribution depends on you. You have the flexibility to choose the amount to contribute up to the legal limit. You also have the choice to raise, lower or suspend your contribution to the Solo 401k, making it much more manageable than other plans.
Solo 401k Loan Feature
Unlike other retirement plans, the Solo 401k allows you to take a loan from your retirement account for any reasons whatsoever. The Solo 401k loan can amount to 50% of your retirement account value or $50,000 (whichever is lower). Plus, the interest is based on the rate of the lowest interest of the current prime. This feature gives you easy access to emergency funds for any emergencies and personal needs.
Roth Solo 401k Account
The Solo 401k plan permits plan holders to contribute to a Roth account, which gives participants the freedom to enjoy tax-free earnings, unlike other retirement plans.
Solo 401k Tax-Benefits
All investments using your Solo 401k account are tax-deferred. Another advantage of the Solo 401k is the exemption from incurring UBTI tax when investing in real estate, unlike other plans such as the IRA.
Solo 401k Easy Funding Feature
Funding your Solo 401k is easy. You can roll over funds from a traditional IRA, previous 401k, SEP IRA and other investment account (with the exception of Roth IRA). In addition, you can open your Solo 401k trust at any bank and credit union you prefer. This feature provides easy access and convenience in funding your account.
The Solo 401k plan is easy to operate. It requires no annual filing (except when the account exceeds $250,000 in assets, in which you need to file Form 5500-EZ with the IRS).