Self-employment is growing in popularity fast lately. According to the statistics, the largest group includes man aged 45 to 64 years old. Self-directed Solo 401k Plans are designed specifically and are available to the self-employed. These plans carry important benefits and rewards.
What is a Solo 401k?
The Solo 401k plan is a simplified version of a conventional 401k plan, outlined by the IRS in 1981. As a traditional 401k plan, the Solo 401k rules are the identical. The Individual k or Solo 401k is intended for the self-employed and small business owner, and as such, give additional options for its account holders.
Following are several benefits of the plan:
- High contribution limits: Because contributions can be made to the plan as both employee and employer, the Solo 401k permits retirement savings to grow at an accelerated rate.
In 2013, the IRS raised Solo 401k contribution limits to $51,000 for those under the age of 50 and $56,500 for those age 50 and above.
Spouses involved in the business can also contribute to the plan, in effect doubling-up the potential contribution total to $113,000 per year if both are age 50 and above.
- Checkbook control: The Solo 401k plan provides its owner total control, or “checkbook control,” over its funds. Funds from the account can be invested with the simplicity and speed of writing a check.
- Unlimited investment opportunities: The plan allows a world of investment opportunities, permitting investments in about every class, from real estate to precious metals. The self-directed nature of the plan allows the portfolio to be diversified under the direction of the plan holder.
- Low cost and ease of management: With the Solo 401k, the holder is also the trustee of the plan. As trustee, he or she can make investment decisions without needing custodian approval. This avoids the costs and delays often related with a custodian.
- Loan feature: The plan allows a loan to be taken from the account for any purpose, including personal use. The loan can be up to $50,000 or 50% of the account, whichever is less.
With advantages such as high contribution limits, checkbook control, and loan feature, the Solo 401k is a powerful financial tool, available to the self-employed and small business owners. Retirees who are self-employed or thinking of joining the growing ranks of self-employed may qualify for the plan and its benefits.