A self-employed 401(k) plan, also called a solo or individual 401(k), is a retirement plan whereby you act as both the employee and sponsoring employer. These plans are only available to businesses with no employees besides the owner and their spouse, where applicable. Have questions about 401(k) Plans? Click here.
Self-Employed 401(k) Plan FAQs
A Self-Employed 401(k) plan is a retirement account designed for individuals who are self-employed or own small businesses with no other employees. It combines the power of a traditional 401(k) plan with the simplicity of an Individual Retirement Account (IRA).
Setting up a Self-Employed 401(k) plan involves selecting an appropriate financial institution and completing all necessary paperwork. You must make sure to follow the rules and regulations governing 401(k) plans, such as setting up deposits and filing annual reports.
Contribution limits on Self-Employed 401(k) plans are higher than those for traditional IRAs. Additionally, plan owners can make both pretax and after-tax contributions, making it easier to meet your retirement goals. The money in this type of plan is also protected from creditors in bankruptcy proceedings.
Yes, there are some restrictions associated with self-employed 401(k) plans. For instance, if you have employees other than yourself, you must offer the same benefits to them that you do yourself. There may also be penalties for early withdrawals, as well as contribution limits.
Yes, contributions made to a self-employed 401(k) plan are tax deductible up to certain limits. Additionally, earnings on your investments and withdrawals during retirement can be taxed at lower rates than other types of income. As such, this type of plan may offer potential savings in taxes over time.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
