If You Only Have a 401(k), You Could Be Missing Out

By Elsie Dudukovich0 Comments
If you’re an entrepreneur, or on the road to being one, it’s important know your retirement options and what those choices mean at tax time.  Forbes contributor Holly Magister details some interesting ideas about the subject in her article, “Will You Pay Taxes on Retirement Income?  You Decide.”  If your retirement planning experience is limited to the time you spent working for a company and participating in their 401(k), you run the risk of missing out on increasing your retirement savings through business plans such as a SEP or a Solo 401(k) (also known as an Individual 401(k)) or tax diversification through actions such as a Roth conversion.          

The Simplified Employee Pension (SEP) was created for small-business owners or self-employed individuals and can be seen as a variation of a traditional IRA.  The employer contributes equally to all employees’ plans and employees can contribute up to the yearly IRA contribution limit as well. The Solo 401(k) combines elements of the SEP and the Savings Incentive Match Plan for Employees (SIMPLE) IRA to create a plan for businesses consisting of only the owners and their spouses. 

While each plan has their own nuances, they both have high business contribution limits compared to the contribution limits for a Traditional or Roth IRA.  This aspect gives small business owners and employees the benefit of being able to set aside more of their income in a tax advantaged way - and to gain even greater benefits by investing those funds.    
In addition to seeing if a retirement business plan is a good option for you, Magister suggests considering a Roth conversion.  If your income limit was too high to qualify for a Roth IRA when you last looked into this type of account, it might be time to take a second glance.  In 2010, the IRS rules changed to remove the $100,000 Modified Adjusted Gross Income (MAGI) limits and adjust the tax filing status requirements.  This gives you an opportunity to convert funds and/or assets from your Traditional IRA to a Roth IRA.       

At Equity Trust, our clients can have the business plans mentioned above and take advantage of the opportunity for self-directing your investments just as you would in your Traditional and Roth IRAs. Schedule a free checkup with a Senior Account Executive to discover how you could use these accounts to your benefit.