A Solo 401(k) is a great way for independent contractors to save for retirement. Build your nest egg and start enjoying tax savings Ubiquity's Single(k)® plan.
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Independent contractors make up nearly 13% of the U.S. workforce. Contracting offers tremendous flexibility, but workers lack access to conventional employer-sponsored benefits like health and disability insurance or matched 401(k) retirement savings plans.
On the bright side, 1099 filers have several strong options to save for their own retirement – with the Solo 401(k) plan the best choice for most savers.
You can save big with a Solo 401(k).
You can defer up to $20,500 of your earnings (or 100% of what you bring in) as an employee of the plan. Since you’re essentially employed by yourself, you may also contribute to your plan as an employer, contributing an additional 20% of your salary to a maximum of $61,000 a year in total employer/employee contributions.
If you ever find yourself truly strapped for cash, needing to pay off a debt fast, or wanting to make a lucrative investment, you can borrow 50% of your plan contributions (up to $50,000) for five years. Interest rates are prime, and no penalty or tax gets triggered as long as you repay yourself before the end of your term.
The administration of a Solo 401(k) is relatively easy compared to other types of 401(k). You needn’t worry about annual nondiscrimination tests or audits. In fact, you won’t need to submit form 5500 to the IRS until your balance reaches $250,000 or more.
With a Solo 401(k), you exercise full checkbook control. You can invest in everything from stocks, bonds, and mutual funds, to real estate, tax liens, and precious metals – all you have to do is write a check from your bank account.
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The best part about the Solo 401(k) is the ability to reduce your tax liability today and earn compounding interest on that money over the decades.
Consider this example: you invest $1,000 in year one of retirement saving. Assuming a 9% rate of return, that means you’d gain $90 to have a total of $1,090 invested. The following year, you gain 9% on your $1,090 and receive $98 for a total of 1,188 invested.
Now, fast-forward 10 years, you’re now gaining $195/year with a balance totaling $2,367. Twenty years later, you’re bringing in $463/year with a balance of $5,604. After 40 years of investment, assuming the 9% rate of return remains constant, you’ll end up with $31,409 in savings and an annual rate of return adding $2,593 to your coffers. And that’s with only $1,000 put in your first year! Imagine if you kept contributing and saved even more.
In addition to the Solo 401(k), you may also consider:
Ubiquity is happy to help independent contractors save for retirement. We can help you set up your account online in a matter of minutes. As 401(k) plan administrators, we’ll be sure you make the right amount of contributions and that you remain in compliance with the IRS. Contact us today for a 401(k) plan with no hidden AUM fees.