Thinking of opening up a new solo 401(k) plan for 2023? Thanks to SECURE 2.0, you don’t have to rush to get it done by year end.
A solo 401(k) is an excellent retirement savings vehicle for self-employed business owners with no employees (other than their spouse). That’s because the IRS says that a business owner with a solo (k) actually wears two hats – one as an employee and one as an employer. As an employee, he can make elective deferrals up to $22,500 for 2023, or $30,000 if age 50 or older.
A solo 401(k) plan is a great retirement savings vehicle for self-employed business owners with no employees (other than their spouse). But if you’re considering a new solo 401(k), be aware that there’s a December 31, 2022 deadline to open up the plan if you want to make 2022 elective deferrals.
A solo 401(k) plan is a great retirement savings vehicle for self-employed business owners with no employees (other than their spouse). But if you’re considering a new solo 401(k), be aware that there’s a December 31, 2022 deadline to open up the plan if you want to make 2022 elective deferrals.
As we move into 2022, small business owners may be wondering whether they still have time to establish a new retirement plan for 2021. The short answer is: “It depends.”
There are several retirement plan options especially designed for small business owners, including the self-employed. These include SEP IRAs, SIMPLE IRAs and Solo 401(k)s. All three can be opened up and maintained easily and inexpensively, and all allow tax-deductible contributions that can be significantly higher than the IRA contribution limit.
Are you considering opening up a new solo 401(k) and looking to maximize your 2021 contribution? If so, you may need to act quickly. There is a December 31, 2021 deadline for establishing a new plan if you want to make 2021 elective deferrals.
Not everyone has a boss. In an economy upended by COVID, individuals, sometimes by choice and sometimes not, are striking out on their own and starting new businesses or becoming part of the gig economy. A critical issue for these workers is how to save for retirement.
In the August 16, 2021 Slott Report, we showed that someone participating in a 401(k) plan through a “regular” job could also establish a solo 401(k) plan through a side job and potentially contribute up to $58,000 this year in after-tax contributions to the solo plan. However, this only works if the company sponsoring the regular 401(k) plan and the entity sponsoring the solo 401(k) (e.g., a sole proprietor) are considered unrelated under IRS rules.
If you sponsor a solo 401(k) plan, beware!
The IRS recently announced that it is targeting several employer plan areas for stepped-up auditing. One of those areas is solo 401(k) plans.
The fact that solo plans made the list is a signal that the IRS believes there are widespread compliance issues with these plans. While solo 401(k) plans don’t have as many rules to follow as employer-based 401(k) plans, there are still several requirements. The IRS announcement should be a warning to business owners with solo plans to make sure they are obeying those rules.
We’ve been getting a number of questions lately about whether it’s too late to set up a new solo 401(k) plan for 2020.
The answer is “sort of.”
Business owners with no employees (other than a spouse) can contribute to a solo 401(k) plan. Solo plans are typically used by sole proprietors but are also available if your business is incorporated or structured as a partnership or LLC.
One of the many issues facing self-employed individuals is how to save for retirement. Of course, one option is to open a traditional or Roth IRA. However, the annual maximum contribution ($5,500 for 2018 if you are under age 50) is low in terms of retirement planning. Therefore, the self-employed often look to adopt employer-sponsored retirement plans. While there are a number of options, the Solo 401(k) is one of the most popular arrangements. Not only does the Solo 401(k) produce higher contribution levels than other arrangements, but employer contributions are tax deductible! Of course, like anything else, there are pros and cons.
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