First Look: Individual 401k

You may have heard of this investment option by the names “Solo 401k” or “Self Employed 401k“, but I like the name Individual 401k, so that’s what I’m going to use to describe this great retirement option.

What Is An Individual 401k?

It’s a plan that enables small business owners (preferrably one with no employees) to contribute much more than a Roth IRA.  This plan allows you can contributed up to $49,000 a year, if you have enough profit!  How’s that for a contribution!!!

If you are self-employed you can contribute $16,500 + 25% of your compensation from your business… up to $49,000.

If you have a very profitable business, this would definitely be an option to consider!

The tax benefits of an individual 401k are as follows.

  • Contributions to an Individual 401(k) plan are tax-deductible
  • Earnings grow tax-deferred.
  • Contributions are not taxed until withdrawn.

The Individual 401k is most benefitial to small businesses that don’t have any employees.  Once an employee enters the picture the paperwork gets much more complex, since the plan must be offered to each employee.

I’m not in a position to take advantage of this great option.  But if you own a small put profitable business where you don’t have any employees, this plan may just be your thing!

Interested in opening up an individual 401k, check out at Charles Schwab’s Individual 401k offering.

-MR

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13 thoughts on “First Look: Individual 401k

  1. Yep, this is a great option for those self employed individuals! If they have a great year, it’s a great idea to max out their contributions. If they could, the interest alone will grow massively over the next couple of decades.

  2. I’ve sort of looked into this for my husband’s business. I haven’t moved on it yet since I need to research it a little bit, but this might be something I eventually invest in. Thanks for the simple explanation!

    • This is my first ever “First Look” series. There is a lot more detail that I will provide in a later post. This is just what is the most benefitial points for most company owning folks. It’s quite the dynamic plan and can get much more complex with choices an individual makes.

    • It really seems like a pretty sweet solution to me! If I had a business that was profitable enough, I would definitely take advantage of the benefits of such a plan 🙂

  3. To sum it up, you are in control of your future without being hands on. Actually, you can take charge even before you sign up for a Solo 401k and Ultimate IRA. You can turn over from any existing retirement account or plan, may it be IRA, 401k, SEP IRA, Keogh, etc.

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