Self Employed 401k Plan - An Attractive Choice For Independent Entrepreneurs
Those engaged in operating their own business know all too well how important research and foresight are to creating a viable and sustainable entity.
Of equal importance is careful, strategic planning for retirement.
By researching a series of investment vehicles available to independent businessmen and women, it is quite possible that the self employed 401(k) plan will emerge as the best choice for entrepreneurs working alone and without employees.
Stemming from the Economic Growth and Tax Relief Reconciliation Act of 2001, the self employed 401(k) plan is often mentioned as a wise choice for solo businesspeople due to their relatively simple nature, and the fact that they are not expensive to establish and administer.
Solo 401(k) plans differ only slightly from traditional plans, but enjoy relaxed regulations due to the fact that only the business owner and possibly his or her spouse qualify as participants.
Partners and co-owners in a business, along with their spouses, may also qualify as contributors to this type of plan.
An additional feature making these plans appealing to solo business owners is that larger contributions can be made under this type of plan than might be available under alternative choices.
A self employed 401(k) plan is available to any independent business operator, including an owner, a sole proprietor, a freelancer, a contractor, or someone working under an LLC or corporation structure.
Contributions to these plans can be made as Roth allocations, meaning they are done with after tax dollars, or they can be tax deferred amounts.
Participants are free to combine the two types of contributions, adding to the flexibility of these plans.
Roth allocations are characterized by their tax free growth and can be withdrawn free of tax.
Tax deferred allocations qualify for deductions at the initial end, though the principle and earnings will be taxed when withdrawn.
The maximum contributions allowed under a self employed 401(k) plan will depend on the type of business enterprise, and will top out at a level that is determined annually.
Currently, a sole proprietor may allocate up to $49,000 in earnings, and anyone older than 50 years of age can contribute a maximum of $54,000.
Businesses that are not incorporated are permitted to make both profit sharing allocations and salary deferral allocations at levels determined by net earnings.
At present, salary deferral amounts allowed are limited to 100% of the first $16,500 earned via self employment efforts, or the first $22,000 for those over age 50.
Profit sharing allocations are limited to 20% of income gained through self employment.
These contributions are not subject to income tax, though they will remain subject to self employment tax.
Businesses that are incorporated have profit sharing contribution limits of 25% of the corporation's income, subject to the total maximum permitted.
Of equal importance is careful, strategic planning for retirement.
By researching a series of investment vehicles available to independent businessmen and women, it is quite possible that the self employed 401(k) plan will emerge as the best choice for entrepreneurs working alone and without employees.
Stemming from the Economic Growth and Tax Relief Reconciliation Act of 2001, the self employed 401(k) plan is often mentioned as a wise choice for solo businesspeople due to their relatively simple nature, and the fact that they are not expensive to establish and administer.
Solo 401(k) plans differ only slightly from traditional plans, but enjoy relaxed regulations due to the fact that only the business owner and possibly his or her spouse qualify as participants.
Partners and co-owners in a business, along with their spouses, may also qualify as contributors to this type of plan.
An additional feature making these plans appealing to solo business owners is that larger contributions can be made under this type of plan than might be available under alternative choices.
A self employed 401(k) plan is available to any independent business operator, including an owner, a sole proprietor, a freelancer, a contractor, or someone working under an LLC or corporation structure.
Contributions to these plans can be made as Roth allocations, meaning they are done with after tax dollars, or they can be tax deferred amounts.
Participants are free to combine the two types of contributions, adding to the flexibility of these plans.
Roth allocations are characterized by their tax free growth and can be withdrawn free of tax.
Tax deferred allocations qualify for deductions at the initial end, though the principle and earnings will be taxed when withdrawn.
The maximum contributions allowed under a self employed 401(k) plan will depend on the type of business enterprise, and will top out at a level that is determined annually.
Currently, a sole proprietor may allocate up to $49,000 in earnings, and anyone older than 50 years of age can contribute a maximum of $54,000.
Businesses that are not incorporated are permitted to make both profit sharing allocations and salary deferral allocations at levels determined by net earnings.
At present, salary deferral amounts allowed are limited to 100% of the first $16,500 earned via self employment efforts, or the first $22,000 for those over age 50.
Profit sharing allocations are limited to 20% of income gained through self employment.
These contributions are not subject to income tax, though they will remain subject to self employment tax.
Businesses that are incorporated have profit sharing contribution limits of 25% of the corporation's income, subject to the total maximum permitted.
