As part of our Veracity Capital Knowledge Series: Beyond Taxes, we’re exploring why the Solo 401(k) is a powerful retirement tool for self-employed individuals and small business owners with no employees. If you missed our first post, Six Strategies for Year-End Tax and Charitable Planning, be sure to check it out for valuable insights as we continue to cover important topics in this series. Now, let’s walk through five key advantages that could make this plan a great fit for your retirement strategy.
1. High Contribution Limits: Save Big
One of the standout features of a Solo 401(k) is its contribution limits. For 2024, you can contribute up to $23,000 as an employee or $30,500 if you’re 50 or older. But that’s just the beginning. As the employer, you can also chip in up to 25% of your compensation. Altogether, this means you can potentially contribute a whopping $69,000 (or $76,500 if you’re over 50). That’s a fantastic way to supercharge your retirement savings.
2. Tax Advantages: Keep More of Your Money
Who doesn’t love saving on taxes? Contributions to a Solo 401(k) can reduce your taxable income for the year, lowering your overall tax burden. Plus, you have options: you can make pre-tax contributions to benefit now or opt for Roth contributions, which offer tax-free withdrawals in retirement. And don’t forget about tax-deferred growth—your investments grow tax-free until you withdraw them.
3. Flexible Investment Options: Customize Your Portfolio
With a Solo 401(k), your investment options are not limited like a traditional 401(k), you can invest in a broad range of assets, including stocks, bonds, mutual funds, ETFs, and even alternative investments like real estate. This flexibility allows you to align your investment strategy with your financial goals and make your money work harder for you.
4. Loan Feature: Access Your Funds When Needed
Life can be unpredictable, and sometimes you may need quick access to cash. Many Solo 401(k) plans allow you to borrow from your account—up to $50,000 or 50% of your balance, whichever amount is smaller. Just remember, this loan needs to be repaid with interest, but it can be a handy option for personal or business needs.
5. Easy Administration: Live With Less Hassle
Administering a Solo 401(k) is generally much simpler than traditional 401(k) plans. You won’t need to file annual reports until your account balance exceeds $250,000. This means less paperwork and lower administrative costs, giving you more time to focus on what you do best — growing your business.
The Solo 401(k) stands out as one of the most versatile and effective retirement savings options for self-employed individuals and small business owners. Its flexibility in contributions, the ability to lower taxable income, and the potential for tax-free growth through Roth options make it a unique tool in the retirement landscape. Whether you’re looking for higher contribution limits, investment freedom, or easier administration, the Solo 401(k) offers features that can help tailor your retirement savings to your individual goals.
If you have questions or want to learn more about how a Solo 401(k) can benefit you, feel free to email us at info@veracitycapital.com, or schedule an introductory meeting here.
Advisory services offered through Veracity Capital, LLC, a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.