Solo or Individual 401(k)
If you are self-employed and donot foresee hiring employees in future for
your small business, the Solo or Individual version of 401(k) retirement
plan may be just right for you.
Recently, a growing number of financial Services firms have started
offering individual 401(k) plans, boasting many of the same features as
their corporate counterpart. And it has truely become quite popular.
Just like the corporate 401(k) or SEP-IRAs (discussed last Friday)
designed for the self-employed, Solo 401(k)s also allow you to invest a
part of your income on a pre-tax basis - and the contributions grow tax
deferred. But unlike SEP, one can borrow against one's account and also
the contribution limits are a lot higher. In 2005 one can save (100% of the
first $14000 of their income + additional
SEP one can contribute only upto 25% of total compensation. For both SEP
and Solo 401(k) plans, the maximum contribution limit is $42000 in 2005
or $46000 if one is 50 or older.
However, if you are planning to expand your business by hiring emplyees,
the individual 401(k) is not a right plan for you. In that case you will have
to convert to the more complicated employer's 401(k).
Also, remember that, even though the law allows you to take loan upto
50% of your individual 401(k), upto a limit of $50,000, not every provider
offers such an option. So, be careful in selecting a right provider for you.
Also, do not forget to compare set-up fee, annual fee and other charges of
different providers.
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