Solo 401(k), referred to as the individual 401(k) plan works just like a traditional 401(k) plan, however only difference is that this plan is eligible for self-employed individuals or simply small enterprises who don't have any full-time employees. As a result of many advantages and convenience it offers to the individuals numerous people are selecting this plan over other investment choices. When you've some questions cropping up in your mind, read on. This post answers some of the most faq's relating to solo 401(k) plan.
What is solo 401(k) plan?
401(k) plans are approved as qualified retirement plans by IRS. Since you can understand through the name itself, solo 401(k) plans are developed for individuals. Beneath this plan, a self-employed person may make contribution both as the employer and even the employee so the contribution limitations are extremely high in this plan. And so by simply opening up this type of account you will get significant tax plus 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 are self-employed or simply own a small-business corporation although do not possess full-time employees apart from your partner. Just in case, you have a part-time employee that works less than 1,000 hours a year, you can still invest in a solo 401(k) plan. Yet, if you're planning to hire employees soon, you can not select this plan.
How much contribution can you make in a solo 401k plan?
Depending on the new 2012, solo 401(k) rules, a individual who is not yet of 50 years can make a max contribution of up to ,000. But, those who are above 50 years can make a contribution of up to ,500. The yearly contributions are flexible in nature that means your contribution can be increased, decreased or even stopped on a over the years basis.
When could i get access to my investments in solo 401(k)?
As with any other retirement plan you are supposed to stay invested till you reach age 59 1/2. If you take out early you'll be slapped with an early withdrawal penalty of 10%. However, there are specific acceptable hardship instances for withdrawal on which no fee is applied. You're able to take out early as well as penalty-free for purchasing your first home, to fund higher education, to make payments for stopping eviction or foreclose to pay for the expenses in case you suffer sudden disability.
Would my investments be taxed?
Under a normal solo 401(k) plan your money grows tax-deferred. Although, your hard earned money will be taxed during the time of withdrawal. But in case, you go searching for a Roth version, you'll have to put in after-tax amount now, but yet your money will still grow tax free. In the Roth 401(k), your money is therefore not taxed at the time of withdrawal. The Roth version is sought after by those who expect that the tax bracket may grow substantially at the time of withdrawal.
Am I entitled to loans with my solo 401(k) plan?
You are allowed tax free loans with a solo 401(k) plan. You could take a loan almost half of the total value of the solo 401(k) still up to a maximum of ,000. It is among the key benefits of solo 401(k) plans as IRS principles do not permit loans with IRAs, SEP IRAs, or Keogh (Money Purchase/Profit Sharing Plans).
How can I initially fund my solo 401k plan?
As in the case of self-directed IRA LLC, to fund the solo 401(k) initially 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 also rollover IRAs on a tax-free basis. This could be achieved through setting up a Trust account for the solo 401(k) and after that directly transferring the funds from the present Custodian to the trust bank account. You can open the trust account at any local bank or credit union.
Can anybody assist me set up and so control my account?
Handling 401(k) plans require considerable amount of paperwork. In case your account balance is much more than a specific amount, you would definitely need to file a special tax return.
You can find number of financial advisory companies which can help you establish and moreover administer a solo 401(k) plan affordably and conveniently. Select a reputed company that guides you about the implications of opening a solo 401(k) plan and so make it easier to derive top benefits out of it.