Retirement
Solo 401K
By Jason Cunningham
May 1, 2007 - 5:28:25 PM

The Solo 401K is a retirement plan for a business that has only two employees, the owner and his or her spouse. If you plan to hire more employees, you might be wise not to consider the Solo 401K. Otherwise, the Solo 401K can provide an owner and spouse a generous saving vehicle for retirement.

You can currently contribute up to $45,000 (year 2007 - up to $15,500 for salary deferral and $29,500 - profit sharing) in a Solo 401K. There is also a $5000 a year catch-up for those age 50 years old and older. You are allowed to contribute $1 for $1 up to the first $15,500 of earned income. After the first $15,500 of income, your company can add $.25 on every $1 of income earned until your account matches $45,000 ($50,000 - 50 years old and older).

The Solo 401K Plan has many advantages. Your 401K assets can grow on a tax-deferred basis. Some people do choose to use after-tax dollars to fund the Solo 401K. Also, there is also no need for 401K discrimination testing , because it is impossible to discriminate against yourself.

While a Solo 401K may sound like the plan for you, it is important to weigh all of the benefits and disadvantages of this plan against all other retirement vehicles. Nevertheless, the Solo 401K can be a good product for business owners that have no other employees other than their spouse.

Please do not construe this article concerning the Solo 401K as tax or investment advice. Please consult a financial advisor or tax accountant for more information.