Single(k) Plus combines the simplicity of individual retirement savings with the flexibility and higher contribution limits of a big-business profit-sharing plan. You can lower your taxable income today while building your nest egg for when you are ready to retire.
Lower your taxes in three ways:
- Traditional solo 401(k) contributions: Contribute to your retirement savings using pre-tax dollars. You do not pay taxes on the income you contribute to your solo 401(k), lowering your annual tax bill. When you are ready to retire, you will pay taxes on the funds you withdraw.
- Roth 401(k) contributions: Contribute to your retirement savings using “after-tax” dollars. With a Roth 401(k), your contributions come from income on which you have already paid taxes. However, those investments can then grow tax-free, and you will not have to pay income taxes on them when you are ready to retire.
- Combine both: You can make some contributions using pre-tax income and some using after-tax income. Mix and match however you choose, up to the annual contribution limit. (See below.) Note: if you want to make both traditional and Roth 401(k) contributions, you will need to keep them in separate brokerage accounts.
Take advantage of high contribution limits and profit-sharing
When you choose a Single(k) Plus plan, you have the opportunity for nearly 10x the tax-advantaged retirement savings each year than with a traditional individual retirement account (IRA).
For 2022 you can contribute up to $20,500, plus an additional $6,500 in “catch-up” savings if you are 50 or older. (If you are saving with a traditional IRA, the 2022 contribution limit is just $6,000, plus catch-up contributions of $1,000 for those 50 or older.)
With a Single(k) Plus plan, you also have the option to contribute up to an additional $36,000 in what’s called profit-sharing contributions.
(If you imagine a big-business 401(k) plan, where the employer also contributes money to employees’ retirement accounts, that is the employer portion.) As a freelancer or independent contractor, you are technically both the employer and the employee—so you can max out both kinds of contributions if you choose. If you do, that is a total savings potential of up to $61,000 in tax-advantaged retirement savings this year!
Borrow against your savings if you need to
Withdrawing funds from a 401(k) account before you retire is never a good idea—and carries hefty fees. However, one of the big-business benefits that Ubiquity Single(k) Plus plans bring to freelancers and self-employed business owners is the ability to take out loans against your retirement savings if you need to.
You can borrow up to $50,000 from your vested retirement account savings. For a general-purpose loan, you can pay yourself back over a loan term up to five years. If you are borrowing to purchase a home, you can pay yourself back over 30 years.
