Many small-business owners are trapped into thinking that the only way they can avoid the taxes incurred during retirement is through the IRA (Individual Retirement Account) or the SEP (Simplified Employee Pension). Little did they know that there is another option! 401(k) or Solo 401(k) retirement plans may allow them to have a custom solution for their retirement. So, why should we consider going with 401(k)?
Advantages of Solo 401(k)
There are a lot of similarities when it comes to the SEP, IRA and the Solo 401(k). However, Solo 401(k) can only be applied to businesses whose owners do not have any employees, thus the word “Solo”.
One of the most defining features of the Solo 401(k) is the freedom of the business owner to be the trustee AND the administrator of the returns that they will get; in contrast with SEP and IRA which bind owners to have a custodian to manage their assets. Another thing that gives 401(k) the upper hand is the flexibility of the distribution of money. Through said plan, you can give a total of $18,000 plus 25% of your income to the plan, thus allowing you to save more money in the long run. Why? Through this, you can keep your FICA contributions while still giving the amount equivalent to a typical SEP, IRA fees. It’s a good long-term investment.
Are the Reasons Enough?
The reasons above are pretty convincing. However, if you are still looking for more, here is one. The reason why you should prefer 401(k) over other options is that you will be able to save a lot through tax-deferred dollars. You can even save up to $18,500 per year given a Solo 401(k) and S-corp combo! However, you must set it up now, so you can claim your tax-deferred amount by the next year. Do this by paying the fee, which may range from $1,250 to $3,000. If you are going to contribute to your partner’s 401(k) too, then you should include him or her into the payroll of the year. Easily done, right?
Don’t feel trapped in planning your retirement with the traditional plans available. You can search and choose from a wide array of solutions that can help you be secure in your retirement. Want us to help you out? Contact us here!
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