Start saving the self-employed way with Ubiquity's easy, affordable solo 401(k) plan.
Start saving the self-employed way with Ubiquity's easy, affordable Single(k)® plan.
Connect with a retirement expertSelf-employment is great for visionary, freedom-seeking entrepreneurs.
However, the dream has its drawbacks. Those who go it alone assume the entirety of the risk, the workload, and the tax obligation as both the employer and the employee. Plus, they don’t have the luxury of an employer-sponsored retirement plan to soften the blow at tax-time.
Opening a solo 401(k) effectively solves this problem for those who qualify. With the right provider, solo business owners can start reaping immediate tax benefits, saving for the future, and enjoying greater financial flexibility at an affordable cost.
A solo 401(k), often known as a one-participant 401(k) or individual 401(k), is a specialized retirement savings account created for self-employed professionals and business owners without any full-time workers aside from possibly a spouse. This retirement plan parallels many features you’d associate with a company-sponsored 401(k), including allowing participants to finance their accounts with pre-tax dollars. Additionally, contributions can prosper tax-free until retirement, when the account holder begins withdrawals.
However, its distinctive advantages and slightly differing prerequisites set the solo 401(k) apart from its corporate counterpart. For instance, solo 401(k)s typically boast a higher contribution limit and don’t impose potential age or income constraints like some company-sponsored plans might. But it’s essential to understand that not everyone can opt into this plan. To be eligible for the best solo 401k, an individual:
To learn more about single-person retirement solutions, solo 401(k) providers can shed more light on your available avenues. Consulting with solo 401(k) providers can be a great starting point and offer insights on the best self-employed 401(k) options tailored to your personal needs.
If you are a sole proprietor, freelancer, independent contractor, side-job worker, or solo entrepreneur, a solo 401(k) is the ideal choice for retirement savings for the following reasons:
Solo 401(k)s (and SEP IRAs) offer the highest maximum contribution limits compared to other self-employed retirement plans. If you have no plans to add employees to your business, then a solo 401(k) makes sense. (Just keep in mind: if you’re taking out a solo 401(k) for contract work done on the side of your regular job, the contribution limits apply per person, not per plan.)
What if you add employees? If you have a solo 401(k) and add a full-time worker to payroll, you will no longer be able to contribute to your plan; while your account is frozen, you can still manage it and allow it to mature. If you do expand and wish to cover your employees, you may consider an alternative such as a SEP IRA, which will enable you to contribute 10% of your earnings, as well as 10% of each eligible employees’ earnings as well. Other options may make more sense, depending on your expansion needs.
You can opt for a traditional solo 401(k) during setup, meaning that you defer the taxes you pay at withdrawal time. In other words, the traditional solo model allows you to deduct a percentage of your taxable income for the year to reduce your tax burden. Or you may opt for a Roth solo 401(k), which allows you to claim the lesser of your retirement contributions or 25% of your net self-employment earnings. If you’re worried about the tax rate climb in the future cutting into your retirement dollars, opt to pay your share of the taxes now.
Generally speaking, it’s best to allow your retirement fund to grow over the years, but in a pinch, the money is available to you. Solo 401(k) account holders can borrow up to 50% of the plan value or $50,000 – whichever is less. This is a great perk for single business owners who may have limited resources available when financial times grow tough.
With a solo 401(k), you contribute as both employee and employer. In 2023:
Contributions are generally made on a pre-tax basis. However, some solo 401(k) providers also offer a Roth 401(k) option that lets you invest some or all contributions on an after-tax basis, so that they are tax-free in retirement. The IRS considers “retirement age” to be 59.5. Any distributions taken out of the account beforehand may be subject to taxes and penalties.
If your spouse earns income from your business, you can effectively double your solo 401(k) contributions as a family. On the employee side, you can contribute up to $23,000 for your spouse (plus the $7,500 catch-up provision, if eligible). On the employer side, you can make the plan’s profit-sharing contribution up to 25% for your spouse as well.
To get started, you’ll need to:
Owner-only businesses need a 401(k) provider that can meet their needs. Consider the following:
Fit Small Business named Ubiquity one of the 10 “Best Solo 401(k) Providers,” particularly for individuals who like the freedom to choose their own brokerage firm. Since our founding in 1999, we have helped more than 100,000 people invest more than $3 billion in retirement savings accounts.
Ubiquity creates the plan, facilitates contributions, provides customer service, administers loans if necessary, and offers tax form assistance for an additional fee. The price for our simple, flexible Single(k)® plan is easily established online and is very affordable to manage.
Start saving the self-employed way.
Thinking about retirement as a business owner? The solo 401(k) is your go-to. Various providers offer unique perks to ramp up your retirement savings. Here’s how to make the most of this game-changing account:
As the owner, you can also contribute up to 25% of your earnings. Just remember to adjust your income for any direct contributions and self-employment taxes.
Why Not Go Roth? Many experts suggest Roth solo 401(k)s for tax-free growth and withdrawals. You’re paying taxes upfront, but you can pull out your money tax-free during retirement. Plus, you can contribute way more than you can with a regular Roth IRA.
Got a Working Spouse? If your spouse earns income from your business, they can contribute too. You both share the same employee contribution limits, and as the boss, you can make additional contributions for them. For some couples, that could mean up to $138,000 in contributions a year.
More Tips:
The solo 401(k) lets you contribute as both employee and employer, meshing well with other retirement strategies. If you’re looking for top solo 401(k) providers, check out Ubiquity.
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Talk to Sales
Schedule a Free Consultation
Contact Support
Visit our Help Center
support@myubiquity.com
Monday–Friday
6am–5pm PT / 9am–8pm ET
© 2024 Ubiquity Retirement + Savings
44 Montgomery Street, Suite 300
San Francisco, CA 94104