Solo 401(k), better known as the individual 401(k) plan works as a traditional 401(k) plan, however the only difference is that this plan is eligible for self-employed individuals or simply business owners who do not have any full-time employees. A result of various benefits and so ease and comfort it offers to the individuals a number of people are choosing this plan over other investment options. If you've got specific questions cropping up in your mind, read on. This article answers some of the most faq about solo 401(k) plan.
What is a solo 401(k) plan?
401(k) plans are approved since qualified retirement plans by Internal revenue service. As you can understand by the name itself, solo 401(k) plans are planned for individuals. In this plan, a self-employed person may make contribution both as the employer and so the employee and so the contribution limitations have grown high in this plan. Which means that by simply opening such an account you will gain considerable tax and even saving advantages as contributions to solo 401(k) plans is 100% tax deductible.
Who is eligible to invest in a solo 401(k) plan?
Solo 401(k) is made for individuals who're self-employed or even own a small-business corporation but do not have any full-time employees other than your spouse. In case, you do have a part-time employee which works less than 1,000 hours a year, you can still select a solo 401(k) plan. Though, if you're planning to hire employees soon, you cannot prefer this plan.
How much contribution can you make in a solo 401k plan?
As stated by the new 2012, solo 401(k) rules, a participant who isn't yet of 50 years can make a max contribution of up to $50,thousand. Though, those who're over 50 years can make a contribution of up to $55,500. The yearly contributions are flexible in nature which means your contribution could be increased, decreased or simply stopped on a year by year basis.
When will i get access to my investments in solo 401(k)?
As in any other retirement plan you're likely stay invested till you reach age 59 1/2. For those who take out early you'll be slapped with an early withdrawal penalty of 10%. Though, there are actually certain acceptable hardship instances for withdrawal on which no fee is applied. You could take out early as well as penalty-free for purchasing your first home, to fund higher education, to make payments for avoiding eviction or foreclose to pay for the expenses in case you suffer sudden disability.
Will my investments be subject to taxes?
Within regular solo 401(k) plan your money grows tax-deferred. Though, your hard earned money will be taxed during the time of withdrawal. In case, you opt for a Roth version, you will need to put in after-tax amount now, and yet your money will still grow tax free. Within the Roth 401(k), your money is therefore not taxed at the time of withdrawal. The Roth variant is preferred by people who assume that the tax bracket may go up considerably in the time withdrawal.
Am I qualified to receive loans with my solo 401(k) plan?
You are entitled tax free loans with a solo 401(k) plan. You may take a loan up to half of the total value of the solo 401(k) still up to a maximum of $50,000. This is one of the key benefits of solo 401(k) plans as IRS guidelines don't permit loans with IRAs, SEP IRAs, or even Keogh (Money Purchase/Profit Sharing Plans).
How can I at first fund my solo 401k plan?
As in the case of self-directed IRA LLC, to fund the solo 401(k) at the start you might rollover funds from previous employer 401(k) plans, traditional IRAs, SEP Plans,
Money Purchase plans, Profit Sharing plans, Keogh plans, Defined Benefit plans, 403(b) plans and so rollover IRAs on a tax-free basis. This can be achieved simply by setting up a Trust account for the solo 401(k) and afterwards directly transferring the funds from the existing Custodian to the trust bank account. You possibly can open the trust account at any local bank or credit union.
Can anyone assist me set up and so control my account?
Dealing with 401(k) plans require substantial amount of paperwork. In case your account balance is alot more than a specific amount, you would definitely require to file a special tax return.
One can find number of financial advisory companies which will let you establish and so administer a solo 401(k) plan affordably and even conveniently. Select a reputed company that guides you about the implications of opening a solo 401(k) plan and so enable you to derive the most benefits out of it.
