Individual 401(k) Retirement Plan
An individual 401(k) is a qualified profit-sharing retirement plan for the self-employed or sole proprietor.
There are so many benefits to being self-employed like having flexibility and being in control, but there is one significant drawback, no access to an employer-sponsored retirement plan like a 401(k).
You can start your own personal retirement plan with an individual 401(k).
Some of the benefits of having an Individual 401(k) (also known as a Solo 401(k) or uni-k) include:
- Higher contribution limits with employer profit sharing match
- Ability to make Roth contributions
- Flexibility to choose your own investments
- Ability to borrow personally from the plan
- Ability to purchase leveraged real estate in your plan while avoiding unrelated business income tax (UBIT).
The types of businesses that can establish an Individual 401(k) include corporations, partnerships, and sole proprietorship.
The individual 401(k) is a good option if you have no employees or if you are a business where you and your spouse are the only employees with a compensation in excess of $100,000.
Roth 401(k) Option
In 2006, the Roth 401(k) was introduced, allowing you to make the salary deferral contributions on a post-tax basis and place them into a tax-free account similar to a Roth IRA. Profit-sharing contributions are still considered a pre-tax contribution. The Roth 401(k) account is well-suited to people who think they will be in a higher tax bracket in retirement than they are present.
|Individual 401(k)||$18,500 (+ $6,000 if 50 and over) of salary deferral + up to 25% employer contributions. Combined employee & employer contributions cannot exceed $55,000 per person (or $61,000 if 50 and over)||$19,000 (+ $6,000 if 50 and over) of salary deferral + up to 25% employer contributions. Combined employee & employer contributions cannot exceed $56,000 per person (or $62,000 if 50 and over)|