subject: Why Having A Solo 401k Plan Is Crucial For Small Business Owners And Entreprenuers [print this page] When it comes to saving for retirement there is a huge difference in strategy for those who work for a company and those who are their own boss. Being on the other side of the fence comes with more responsibility and being a small business owner/entrepreneur means that you have to set things up yourself. The good news is that there are investment vehicles that are geared for just this situation. A solo 401k plan is one that is geared toward entrepreneurs who own their own business and provides several benefits.
Reason #1. You Must Have a Retirement Account
Not having some sort of retirement account that allows you to shield some of your income from taxes is a huge mistake. Many financial analysts call retirement accounts the governments only gift to the people. That is how effective they are at allowing people to save up money and someday get to relax by no longer having to work. With this said you still do not want just any retirement account. You want one that best suits your situation and if you are a entrepreneur then there is no doubt that a solo 401k plan is your best option since it was designed specifically for your situation. Do not make the mistake of going with a general IRA that provides basic needs at best. The one size fits all approach of a general IRA will not give you the best results.
Reason #2. Added Flexibility Opens Up Several Options
With traditional company based 401ks the options that the 401k holders have is very limited. On the other hand the company issuing the 401k plan has a lot of flexibility. When you are on the other side of this fence as a small business owner you can enjoy this added flexibility. Obviously, if you do not employ anyone besides yourself in your business then there is no need to worry about how you manage employee 401ks. For your own 401k you also have a plethora of options and flexibility. Funding for a solo 401k plan can be increased, decreased, or modified in several ways. Traditional retirement accounts do not include this option.
Reason #3. Low Maintenance Costs
Another major benefit of using a solo 401k plan is the low maintenance costs. These types of retirement plans are incredibly low costs and low maintenance. Other retirement plan options will put more strain on entrepreneurs and small business owners. The requirements of both cash costs and energy/time that must be dedicated to monitor other accounts can put a heavy strain on an individual trying to manage a business at the same time. The solo 401k plan is geared towards adding this benefit so business owners can dedicate more time to managing their business by reducing the time needed to check on/monitor the retirement account.
Reason#4. Higher Contribution Limits
Most retirement accounts only allow for a contribution of about $5,000.0 annually. With a solo 401k the contribution limit is almost ten times that of a regular retirement account with a contribution limit of $49,000.0 annually. Also, there are numerous "roth-type" options built into the solo 401k. This means that even those with high incomes can enjoy the benefits of those types of retirement accounts. With traditional retirement accounts people with high incomes are not allowed to enjoy the roth-like options that help so many low income individuals save more for retirement. With higher contribution limits and the ability to use roth-like options the solo 401k is truly the top class retirement account. If you are serious about saving up for retirement and you are an entrepreneur you cannot pass up this amazing new investment vehicle.
