Solo 401k plans have been around for a long
time, but few business owners are using solo 401k. If you're a
small business owner considering the best retirement plan for
your needs, then you would be ill-advised to make your choice
without considering the Solo 401k or solo 401k retirement plan.
A solo 401k is also known as an individual 401k or individual
If your small business consists of 3 or more
employees, however, a solo 401k retirement plan may not be
suitable for your needs.
What is a solo 401k?
A solo 401k or solo 401k plan is a
retirement plan just like the individual 401k. As its name
suggests, a solo 401k plan is a retirement for a business
Although, not every business should open a
solo 401k, the Individual 401k or Solo 401(k) plan is an
extremely handy tool for the owner or owners (which includes
the spouse if working at the business too) are the only
Where did the solo 401k come from?
The Solo 401k is another invention brought
about by the Economic Growth and Tax Relief Reconciliation Act
of 2001. (EGTRRA) Because of this act, we are currently
experiencing the greatest time in U.S. History for small
business owners to start saving for retirement.
Benefits of solo 401k plans
The biggest reason for opening a Solo 401k
plan is the higher contribution limits allowed. More
specifically, contributions in a Solo 401k are based on revenue
generated by the business... Meaning that you can contribute
more on years that your business does better! (And who would
need it the other way around?)
The default solo 401k contribution limits
are great compared to 401k retirement plans and Roth IRAs.
The maximum tax-deductible employer contribution in a Solo 401k
is 25% of gross eligible payroll. For 2006, the maximum
effective salary deferral contribution for employer plus
employee was $44,000, plus a "catch-up contribution" of $5,000
for individuals age 50 and over.
Also, many Small Business owners flock to
open the Solo 401k because of the flexibility offered by
the solo 401k retirement plans. Loans against the Solo 401k are
permitted, of course they are subject to certain limits and
rules of the particular solo 401k plan.
Finally, all necessary paperwork for the
Solo 401k may just be a simple filing of the streamlined IRS
Form 5500-EZ, even after plan assets exceed $100,000.