A Solo 401k is one of the best perks available to self-employed individuals. The plan has numerous benefits in terms of tax deductions and loan flexibility, and is usually the perfect choice for anyone who qualifies. But how do you pick a provider when starting a Solo 401k?
In this article, we will outline the basics of what a solo 401k is and discuss criteria for selecting a Solo 401k provider.
What is a Solo 401k?
A Solo 401k is a retirement plan reserved for those who are self-employed. This includes freelancers, sole proprietors, entrepreneurs, and anyone who falls under the “self-employed” umbrella. The plan is ideal for those who serve as employee and boss of their company for the following two reasons:
1. Tax Benefits. With a Solo 401k, you can essentially contribute to your retirement fund as two people: your employer and your employee. Therefore, you benefit greatly from the tax deductions available. Additionally, you have the option of creating a “Roth” Solo 401k or a “Traditional” Solo 401k, which enable you to withdrawal tax-free when the time comes or have your withdrawals taxed as income respectively.
2. Flexibility in Withdrawing Loans. When the chips are down, economically speaking, those who are on their own generally have very few places to which they can turn. For self-employed individuals, a Solo 401k provides the ability to take out loans of up to 50% of the plan’s value or $50,000 dollars. This can serve as a huge relief in times of economic distress when you absolutely need the money.
What to Look for in a Solo 401k Provider
There are a number of factors you’ll want to consider when selecting a Solo 401k provider:
· Costs Associated with Plan. You’ll want to look for a plan that has few, if any costs associated with it. These include trading fees and AUMs or “Assets Under Management”.
· Ease of Plan Formation, Modification, and Management. You’ll want to be able to easily access, view and modify any element of the plan at times that are convenient for you. When searching for a provider, look for these qualities in their service.
· Availability of Tech Support. Ensure that you can talk to someone if you need help. If you find that you are unable to get ahold of anybody when you have questions, you’ll waste time and energy trying to solve the problem yourself. Your time is too valuable to be spent on these things. Make sure that your Solo 401k provider is there for you when you need them.
· Options for Flexibility. You do not want rigid, unchanging structure in your Solo 401k plan. It is critical that you have the ability to make changes, if and when you want to do so. You should be able to structure your plan in a manner that will work best for your business.
If you are self-employed and are looking for options in a retirement plan, you should strongly consider a Solo 401k. With all of the benefits afforded to self-employed individuals, it is one of the greatest benefits of having your own business.