A Self Employment 401k with Generous Limits on 401k Contributions

Comfortable limits on 401k contributions are among the attractions of a self employment 401k. Good borrowing terms are another advantage, but this individual-style retirement program is administratively expensive.

The Self Employment 401k Offers Generous Limits on 401k Contributions

The Individual 401k is the newest and most exciting retirement plan to benefit the self employed.

Regard it as a self employment 401k. It provides significant advantages to small businesses whose only employee is the owner or the owner and the spouse.

These self employed business owners can establish an Individual 401k plan and take advantage of this powerful retirement savings tool.

What makes the Individual 401k unique is that compared to other self employment retirement plans there are more generous limits on 401k contributions with this self employment 401k. Greater contributions may be made at identical income levels, therefore maximizing retirement contributions and valuable tax deductions.

The individual 401k is also known as a solo 401k. It works similarly to a 401k at a large company. You can even select between a Roth or a traditional plan. But this self employment 401k is available only for individual business owners and their spouses.

Limits on 401k Contributions

The annual limits on 401k contributions for 2011 are $16,500 — with the option of a profit-sharing add-on that is 25% of your compensation or $49,000, whichever is less. The plan also offers $5,500 annual catch-up contributions for savers 50 and older. Most mutual fund and investment management companies offer the solo 401k.

Advantages of This Self Employment 401k

Of course, its liberal limits on 401k contributions make this retirement program a winner for individual business owners.

This self employment 401k is also flexible. There are no forced contributions, and sole proprietors can put away more money than they can with the SIMPLE IRA and often more than with the SEP IRA thanks to the legal limits on 401k contributions. Business owners can take out a loan from this plan, so there are more to its advantages than just the limits on 401k contributions.

An self employment 401k also allows the flexibility to borrow against the value of your account. Tax free loans, up to 50% of the total 401k value with a $50,000 maximum, are permitted in an Individual 401k plan.

Self employed business owners may be well suited for an Individual 401k if their objective is to maximize their retirement funds in light of good limits on 401k contributions or if they would like to borrow from their retirement plan using their 401k balance as collateral via a tax free Individual 401k loan.

Disadvantages of This Self Employment 401k

The self employment 401k is more costly. Plans range from about $15 to $250 per year, though some can be even more expensive. They’re also more difficult to open and administer than some other options. Because costs vary greatly, the self employed need to shop around,

Topic: Pensions for the Self Employed

Subtopics: SmartMoney • Individual 401k • SEP IRA • SIMIPLE IRA • Defined Benefits Pension • SEP & SIMPLE Deadlines • Multi-Employer Plans