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What is 401(k)?

Business owners, including those who are self-employed, can start a 401(k) plan for themselves and their employees, if applicable. A 401(k) plan enables businesses to meet retirement planning and saving goals while taking advantage of business and personal tax benefits. With a Ubiquity 401(k) plan, retirement contributions can be either pre- or post-tax, with funds being deposited directly from an employee’s paycheck each pay period. Many companies also match a portion of their employees’ contributions.

What is a solo or individual 401(k)?

A solo 401(k) is a retirement savings plan for a self-employed or sole proprietor business owner (and business partner or spouse, if applicable). This individual 401(k) plan goes by different names, including Single(k), self-employed 401(k), or one-participant 401(k), among others.

A solo 401(k) plan provides all the same benefits as their larger, traditional 401(k) counterparts, acting as a savings vehicle for participants to invest contributions from their paychecks. By playing both roles as both employer and employee, solo 401(k) plans allow self-employed business owners to maximize their retirement contributions. Self-employed business owners can then gain additional savings by deducting these 401(k) contributions, along with any plan costs, as a business expense.

What is a Roth 401(k)?

A Roth 401(k) is a hybrid between a Roth IRA and a 401(k) plan. In a Roth 401(k), earnings on post-tax contributions grow tax-free, just like a Roth IRA. However, the contribution limits in a Roth 401(k) are significantly higher than a Roth IRA — $23,000 ($30,500 if age 50 or older) in 2024, compared to $7,000 for a Roth IRA.

Borrowing from my 401(k)

Ideally, everyone would have a savings account or emergency fund to draw on when they face unplanned expenses. But in the real world, it’s common for cash flow to fall short of one’s needs from time-to-time. For many people, their largest financial asset is their retirement savings in a 401(k) account. To help individuals manage the challenge of both saving enough for retirement and setting aside money for unplanned expenses, most 401(k) plans allow the business owner and employees to take loans from their 401(k) accounts. When the 401(k) loan is repaid to the plan account, with interest, an individual can stay on track with their retirement savings even while addressing short-term cash needs. But loans that are not repaid can put retirement savings at risk.

When can I take my money out of my 401(k)?

You generally cannot take your money out of a 401(k) unless you have had a “distributable event” such as:

- Reaching age 59½ or older
- Leaving the employer
- Becoming disabled

Each plan will have a list of distributable events.

What does “vesting” mean?

“Vesting” means ownership. You are always 100% vested in the salary deferral contributions you make to a 401(k), but employers may assign a vesting schedule to the contributions they make to the plan (matching or profit-sharing contributions). A vesting schedule requires you to work for the employer for a period of time before owning 100% of the employer contributions made to your account. A vesting schedule can be as long as six years. If you leave the employer before becoming 100% vested, the unvested portion of your account will be forfeited.