Solo 401k plans are generally considered the best 401k plans for individuals in most cases. However, once you decide to open an individual 401k plans, there are still a few more steps to take to secure the best retirement option available and to avoid costly fees or penalties in the future.
1. Know the contribution deadline
In order to make contribution next year, an individual has to have his or her Solo 401k plan set up before December 31 of this year. Contributions can be made until the tax-filing deadline. In order to take advantage of the high contribution limit, make sure you know and follow the contribution deadline.
2. Consider Self-directed option
Many benefits and unique features of individual 401k plans are only available to self-directed accounts, including the flexible choice of investments and the option to become the trustee of your account. Since not all providers offer this option, deciding on a Self-directed account can also help you shorten the list of providers to choose from.
3. Choose the right plan provider
A good plan provider offers all the services you need in order to maintain your retirement account in compliance with IRS rules and regulations. Some services you should look for include assistance with tax filing, loan documentation, roll over or transfer of funds, and so on. Deciding on the right plan provider can save you a headache later on.
4. Know your investment options
With a self-directed individual 401k plans , plan participants can choose from the widest range of investment options, from traditional stocks and mutual funds to real estate and precious metals. With brokerage-based accounts, unfortunately the account holders will be limited to certain investment products. Knowing what is available to your retirement plan will help you elect the best options for your portfolio.
5. Decide if you want a Roth account
A Roth account will let you make after-tax contributions and make tax-free withdrawals in the future. Depending on your financial situations, this may save you a lot of money in taxes. We recommend our account holders to consider their tax situation to determine if a Roth account or sub-account is a better choice for them.
Having an individual k or Solo 401k can help small business owners and independent contractors build a solid foundation for their retirement, but only if they make the right choices. These 5 steps will help you decide on the best options to set up and grow your fund.
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