A 401(k) plan is an employer sponsored retirement savings plan established per provisions of the US tax code. Such plans first came into existence following the enactment of the Employment Retirement Income Security Act of 1974 (ERISA).
A Solo 401(k) is a relatively new iteration of this type of plan dating to 2001 and passage of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA). This law increased the contributions available to the self-employed version of the 401(k) and generally streamlined the administration of such plans.
Since its introduction, the Solo 401(k) has become the favored option for successful business owners to save for their retirement future, and offers many advantages over options such as SEP IRA’s, SIMPLE IRA’s and Keough plans. For self-employed investors who qualify, this is our recommended plan of choice.
" Income from the sponsoring employer may be contributed to the plan on a tax-deferred or Roth basis. Contribution limits are more generous than with IRA based plans, potentially as high as $67,500 per participant."
Many types of existing retirement plans such as IRA accounts or former employer 401(k) plans can be rolled over into a Solo 401(k), without taxes or penalties. All investments made with the Solo 401(k) will have the same tax-preferred status as any other similar retirement plan.
This type of qualified retirement plan is also sometimes referred to as an Individual 401(k), Owner 401(k) or self-employed 401(k).
With most IRA plans, your investment choices are limited to what the sponsoring firm sells – typically publicly traded stocks, mutual funds & bonds, insurance annuities, or bank CD’s. With an IRA LLC, you choose how the funds are invested and can select from a wide array of asset classes, including:
The IRS prohibits investments in collectibles (artwork, jewelry, stamps, etc.) and life insurance. Everything else is possible.This flexibility provides you with the ability to invest in what you know. You can leverage your expertise and network to put your IRA to work in your own community and grow your retirement savings with confidence.
Visit the related topics below to learn more about Solo 401k eligibility, contribution limits, Roth savings and participant loans.
The 401(k) plan itself is a specialized retirement savings trust. As the self-employed business owner, you serve as the trustee of the plan, and have control over how the plan is managed. Rather than have your plan administered by a generic financial services firm with limited investment options, you can self-administer the plan and therefore invest as you choose.
