Intro to Solo 401(k)s
The benefits of the popular 401(k) aren’t just for big businesses anymore. If you’re a sole proprietor or a business owner with no employees, you probably qualify for a Solo 401(k) plan.
It’s a great plan that can help you make the most of your retirement savings, just like the big guys. So whether you’re a full-time real estate agent or a part-time carpenter, a Solo 401(k) can be a powerful tool to help you build a secure retirement.
Want some help deciding if a Solo 401(k) is right for you? That’s what COUNTRY Trust Bank® is here for. Put our 40-plus years of retirement plan experience to work for you. Contact one of our local representatives to get started.
Who it's for
Sole Proprietor, Freelancer, Incorporated
The Solo 401(k) is reserved for self-employed individuals with no employees. The most common exception is that you can employ your spouse. The big benefit it has over IRAs is you can contribute substantially more. It may be a good option for sole proprietors, single-employee corporations, independent contractors and freelancers.
How do contributions work?
It used to be that the self-employed were severely limited in how much they could contribute to their future retirements. Thanks to favorable tax laws, though, the Solo 401(k) rules changed that by giving you two ways to contribute – as an employee and employer:
You can contribute a pretax salary deferral as an employee of your business of up to 100% of the first $18,000 of your 2016 self-employment earnings ($24,000 if you’re 50 or older).
You can also make a contribution as employer, and the limit is significant – 25% of your eligible compensation up to $53,000 for 2016. For sole proprietors or single member LLC's, employers can contribute between 20-25% of eligible compensation, depending on the type of business, up to a maximum contribution of $53,000 for 2016.
Our Solo 401(k) calculator shows you how much you could contribute this year.
Solo 401(k) benefits
Combining the features of a traditional 401(k) and a profit sharing plan, a Solo 401(k) has additional features besides those high contribution limits:
While you can make high contributions every year, it's not required. Funding is discretionary each year, and you can contribute as much or as little as you want up to annual IRS limits.
The contributions you make as an employer are tax deductible. The contributions you make as an employee can reduce your taxable income. Any investment growth is tax-sheltered until distribution. There may be a penalty for early withdrawal.
You don’t have to file governmental reports until the plan’s total assets are over $250,000 or you terminate the plan.
When to establish your plan
If you want your initial Solo 401(k) contribution credited for a specific calendar year – say, 2016 – you have to establish the plan by December 31 of that year. You don’t have to make the actual contribution, though, until that year’s tax-filing deadline.
With COUNTRY Trust Bank as your service provider, you’ll enjoy the added benefit of having a choice of how the investments are managed – whether you’re a do-it-yourselfer or someone who’d prefer to leave investing to the pros.
With this option, you call the shots on the investments – choosing from a wide range of funds, stocks, and bonds.
With a professionally managed plan, and for additional fees, our in-house team of investment professionals make the investment decisions for you. The people choosing your investments all have the Chartered Financial Analyst designation (CFA®).
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Investment management, retirement, trust and planning services provided by COUNTRY Trust Bank®. Please see our Terms & Conditions for more information about COUNTRY Trust Bank and its affiliates.
COUNTRY Financial® and our representatives cannot give tax advice. Any information we provide reflects our understanding of current tax laws, which are subject to change and reinterpretations.