Harvard Law Attorney George Blower provides a quick overview of Solo 401k plans. For more information, email us at business@mysolo401k.net or call us at (800) 489-7571….(read more)

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As a self-employed individual or small business owner, having a Solo 401k can be a great way to save for retirement while also enjoying some tax benefits. However, setting up and managing a Solo 401k can be a bit daunting if you’re unfamiliar with the process. Here is a quick guide to help you understand the basics of Solo 401k.

What is a Solo 401k?

A Solo 401k (also known as an Individual 401k or Self-Employed 401k) is a retirement savings plan designed for self-employed individuals or small business owners with no employees. Unlike traditional 401k plans offered by employers, Solo 401k plans allow owners to contribute as both the employer and the employee, enabling them to save more for retirement.

Who is eligible for a Solo 401k?

To be eligible for a Solo 401k, you must be self-employed with no full-time employees other than yourself and your spouse. However, part-time employees (those who work less than 1,000 hours per year) are exempt from the plan rules.

What are the contribution limits for Solo 401k?

In a Solo 401k plan, you can contribute as both the employer and the employee. For 2021, the maximum contribution is $58,000 or 100% of your compensation, whichever is less. This includes a $6,000 catch-up contribution for those over age 50.

As the employer, you can contribute up to 25% of your compensation or net self-employment income (after deducting half of the self-employment tax and contributions made as the employee).

As the employee, you can contribute up to $19,500 annually or $26,000 if over age 50.

What are the tax benefits of Solo 401k?

Contributions made to your Solo 401k are tax-deductible, lowering your taxable income. Additionally, any earnings or gains in your account are tax-deferred, meaning you only pay taxes on distributions taken during retirement. This can help you save on taxes both now and in the future.

How do I set up a Solo 401k?

You can set up a Solo 401k account through a financial institution that offers self-directed Solo 401k plans. The process is similar to opening a traditional 401k account, and you’ll need to provide some basic information about yourself and your business.

Once your account is open, you’ll be able to make contributions and choose from a variety of investment options, including stocks, bonds, mutual funds, and more.

In conclusion, Solo 401k can be an excellent retirement savings option for self-employed individuals and small business owners with no employees. Talk to a financial advisor to find out if this plan is right for you and to help you get set up.