Any entrepreneur, sole proprietor, independent contractor, freelancer can set up a Solo 401(k) for their retirement savings and enjoy the benefits of wide investment options, reduced taxable income, and easy access to the funds through loan options. A Solo 401(k) helps individuals enjoy financial flexibility at affordable costs.
Factors to be considered while selecting a good Solo 401(k) provider
According to the experts at Ubiquity, when you want to open a Solo 401(k) plan there are some factors you need to keep in mind while selecting your plan provider.
Plan Cost: There are several Solo 401(k) plans that do not require any trading fees or Asset Under Management (AUM) fees. It is important to select a service that provides low cost and transparency.
Ease of Setting Up and Managing the Plan: The Solo 401(k) provider should have an easy plan set up through a user-friendly dashboard. Also, the provider should be able to offer long-term plan management, east investment handling, online reports, monthly statements, and more.
Quality Support Service: It is crucial to select a provider that has a staff that can resolve all the plan related queries clearly.
Flexibility: Lastly, it is important to select a provider that can give you the flexibility to make Roth contributions, take loans from your plan, provide a wide range of investment options, help you choose from a variety of funds, offer sustainable investment options as well as assist you with your tax forms.
Benefits of a Solo 401(k)
An individual is contributing both as the employer and the employee in a Solo 401(k) retirement plan. The main benefits of a Solo 401(k) plan include:
Huge Tax Deductions: A Solo 401(k) plan can help you maximize your contributions and receive huge tax deductions as it has the highest contribution limited as compared to any other self-employment retirement plans. Hence, if you do not intend to add any additional employees to your business, the Solo 401(k) is best suited for you.
No Immediate Taxes: If you opt for a ‘Traditional’ Solo 401(k) while setting up your retirement plan, you can defer the taxes you pay during withdrawal. Thus, a traditional solo model permits you to deduce a percentage of your taxable income thereby reducing your tax burden for the year. If you choose the ‘Roth’ Solo 401(k), you can claim either 25% of your net self-employment earnings or your retirement contributions based on whichever is the lower amount. In case, you are concerned that the tax rates can increase in the future, you have the freedom to opt-in and pay your taxes now.
Loan Flexibility: It is always recommended to allow your retirement fund to grow every year. But if you are in need of money, you can borrow it from the plan. The Solo 401(k) allows you to borrow either $50,000 or up to 50% of the plan value based on whichever amount is lesser. This is a great benefit for single business owners or entrepreneurs who may have limited funds during tough financial times.