Working for Yourself Doesn’t Shut You Out of a 401(k)

By Elsie Dudukovich0 Comments

Sole Proprietor?  Single Member LLC?  Solopreneur?

Opting out of big corporate life to go your own way doesn’t mean losing out on options to save big for your retirement.  Consider the Solo 401(k) and Roth Solo 401(k) plans if you’re wearing all the hats in your business because one day you might want to take those hats off.

Greater personal freedoms and a different kind of professional fulfillment are just two reasons why you’re running your own business; however, the opportunity to participate in a 401(k) is often one of the biggest benefits when you work for someone else.  The contribution limits and employer match offers additional benefits over what you alone can contribute to a Traditional IRA. Going your own way to start a business might feel like you’re walking away from that particular benefit, but it doesn’t have to be that way.

Take a look at the solo 401(k) and the Roth solo 401(k).
  • The solo 401(k) plan isn’t new.   It’s the same type of account as the 401(k) you have when working for another business.  A solo 401(k) has the same rules and requirements; you’re just playing both roles as the employer and employee.
  • You must be the only employee and you must receive a wage or salary for your work in order to contribute to the plan. A solo 401(k) plan must be the only arrangement your business maintains that is not included as part of a controlled group under federal tax law.
  • You can save big for retirement under the contribution limits for a solo 401(k).  From the IRS, you, as the owner can contribute both:
  • Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit:
    • $18,000 for 2015, or $24,000 if age 50 or over; plus
  • Employer non-elective contributions up to:
    • 25% of compensation as defined by the plan,.
  • Total contributions to a participant’s account, not counting catch-up contributions for those age 50 and over, cannot exceed $53,000 for 2015.
You are probably accustomed to relying on yourself to make your business succeed.  Make sure you’re looking out for your personal future, as well as the life of your company. Contact us to learn about all the small business retirement options available.