There are numerous names for a Solo 401(k), including personal, individual, self-employed, Solo, and Uni-k.
Whatever their names, they all refer to retirement savings plans for proprietors of small businesses who don’t hire anyone besides a spouse.
What Is Solo 401(k)?
There are many other 401(k) plan options, but if you’re a sole entrepreneur or independent contractor looking for a savings plan similar to those provided by a large employer, this could be the best option for you.
A Solo 401(k) is a retirement plan that maximizes savings for self-employed people or those who are partners in companies where the only employees are the partners and their spouses.
If you have any common-law employees, you may not make contributions to this plan.
Read more: Social Security payments: Who’s eligible for $1,822 before January 2023?
Ways To Reduce Taxes
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Save today
As an employee, the maximum contribution to a Solo 401(k) is $20,500. Here, though, savings begin to increase.
As the employer, you can contribute up to 25 percent of your self-employment earnings.
Plus, if you are 50 or older, you can contribute an additional $6,500 through catch-up contributions.
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Save later
One of the advantages of forming a 401(k) is the ability to choose when to pay taxes on the invested funds. If you’d rather pay taxes now and withdraw tax-free in retirement, you can transfer some or all of your contributions to a 401(k).
Contributions made today will save you money in the future, even if they do not reduce your current tax liability.
Regardless of the type of Solo 401(k) plan, you’re most interested in, it pays to compare your options. Inquire with a number of brokerage businesses about their fees and get a sense of which provider makes it easiest to navigate your 401(k).
It’s reassuring to know that 401(k) retirement plans are not exclusive to mega-corporations. As the owner and operator of your own business, a 401(k) gives you control over your retirement planning.
Read more: Social Security: You may get your benefits sooner once you retire or earn them as you work
