What to Look for in a Solo 401(k) Plan?

Sole proprietors, freelancers, independent contractors, and entrepreneurs can enjoy significant retirement savings benefits by starting a Solo 401(k) plan. Some of the key features offered by this plan include a wide array of investment options, easy loan options, and reduced taxable income. Solo 401(k) allows you to enjoy financial flexibility at an affordable cost.

What should you consider when selecting a Solo 401(k) provider?

Here is a list of factors that should be considered when selecting your Solo 401(k) plan provider.

Plan Cost: The Solo 401(k) plan usually is free from any asset management fees or trading costs. It is recommended to choose a plan provider who offers complete transparency and has a low-cost plan model.

Ease of Set-Up and Plan Management: Always select a provider who can provide an easy plan set up and has a user-friendly dashboard. Ensure that your provider is offering easy investment management options, online reports, long-term plan management, and monthly financial statements.

Quality Support Service: In addition to easy plan management, the provider should have a solid customer support team who can resolve any of your plan-related queries and provide you with all the necessary information.

Flexibility: It is also important to choose a plan provider who can offer flexibility to borrow loans from your plan, make Roth contributions, has a variety of investment options, and provides sustainable investment options along with assistance in submitting your tax documents.

What Are the Solo 401(K) Plan Benefits?

According to the 401(k) plan providers at Ubiquity, a Solo 401(k) plan allows individuals to contribute both as an employee and an employer to the retirement savings. Some of the key benefits of a Solo 401(k) plan are:

Huge Tax Deductions: This retirement plan can help individuals receive huge tax deductions by maximizing their contributions since it has the highest contribution limits among all the self-employment retirement plans. If you are going to be the sole-proprietor of your business and do not intend to add any other employees then this plan is best for you.

No Immediate Taxes: When you choose a ‘Traditional’ Solo 401(k) plan, you have the option of tax deferral at the time of withdrawal. A traditional Solo 401(k) model allows you to reduce your taxable income percentage thereby reducing your overall annual tax burden. When you select a ‘Roth’ Solo 401(k) plan, you can claim a maximum of 25% of your net salary or your retirement contributions depending on the lower amount. If you are worried that the tax rates may go up in the future, you always have the option to opt into paying your taxes immediately.

Loan Flexibility: Financial experts suggest that you should always allow your retirement savings to grow each year so that you have a substantial fund when you retire. However, if you are in urgent need of funds, you have the flexibility to borrow them from your plan. The Solo 401(k) allows borrowing either up to $50,000 or a maximum of 50% of the plan value depending on the lower amount. This is a good benefit for entrepreneurs, sole proprietors, and single business owners with limited funds.

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