If you’ve decided to leave your 9 to 5 job for the freedom and independence inherent in a solo venture, congratulations! You’ve taken a big step towards achieving the work life you want and you should take some time to applaud yourself for your decision.
However, there are some serious considerations you’ll want to make before you get too busy with your new business objectives. One of the most important things to think about is your retirement planning.
For single member businesses, one of the best retirement plans is known as the Solo 401k. These plans can only be maintained by individuals who serve as their own bosses, and they provide tons of benefits to those who hold them.
All About the Solo 401k
When it comes down to it, most single member businesses are drawn to the Solo 401k for the following 3 reasons:
- Excellent Deferral Options. For the deferral options alone, many independent workers are compelled to start a Solo 401k. Specifically, you can defer as much as $20,500 as an employee and $40,500 as an employer. This comes to a grand total of $61,000 that can be placed in your retirement account each year.
- Tax Flexibility. With regards to taxes, it essentially come down to two different options: Roth contributions and Traditional contributions. Roth contributions are those that are made after tax. This means that when you finally retire, you don’t have to pay any more taxes on the money in your retirement account. Traditional contributions are just the opposite. With traditional contributions, your money is taxed when you withdrawal it in retirement, not when you make your contributions while you work. There are many reasons why a person might choose one method over the other. What’s important is that a Solo 401k allows you to choose how and when your money is taxed.
- No one can predict when a natural disaster or a tragedy will happen in life. For this reason, it’s good to have some sort of safety net. With a Solo 401k, you can take loans from your account of as much as $50,000. This can literally be a lifesaver when disaster strikes and you have nowhere else to turn.
How Should You Choose Your Solo 401k Plan Provider?
When looking for a provider, you’ll want to look for the following attributes:
- Cost transparency. Some providers will, unfortunately, try to impose extra fees and costs for using their service. While these costs may be minimal, they can add up significantly over the years. Make sure you know exactly what you are paying when you elect to work with a plan provider such as Ubiquity.
- An easy-to-use platform. You are a busy person with many things you need to do each day. You shouldn’t have to struggle with old, outdated technology that confuses and frustrates you. Make sure your providers platform is intuitive and doesn’t force you to spend hours trying to find what you want.
- Help when needed. If you need help, you should be able to reach your provider quickly. Don’t choose a plan where the representative leave you on hold for hours then don’t even really assist you after once they arrive!