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Solo 401k Rules and Contribution Limits
Recently joining the ranks of the self-employed by starting my own firm in 2007, I no longer had the option to contributing to my previous employers 401k. Having my own business, I was now open to a slew of retirement plan choices. I could do a Simple IRA, SEP IRA, or the Solo 401k plan. I had done my fair share of advising clients on the investments inside these plans, but it’s whole new ballgame when you are on the other side deciding what plan is best for you. Although, I ended up choosing the SEP IRA for the 2009 tax year (I’ll explain my reasoning in the post), I was able to learn much more information on the Solo 401k rules and contribution limits and wanted to pass them along.
Although the plan is designed for the individual business owner (or self employed), it is technically available to the spouse of the owner and any shareholder or partner in the business, as well.
1. A Solo 401(k) is Simple
Setting up a Solo 401k makes a lot of sense for sole proprietors, owners of an S Corporation, C Corporation or partnership. Currently, my business is structured as a sole proprietor so setting up a Solo 401k seemed like it made alot of sense. Unlike traditional 401k’s, there are no complicated discrimination tests or Form 5500 filing. Not sure what a 5500 is? It’s a form that larger 401k plans have to file with IRS to be compliant. A Solo 401k doesn’t have to worry until the plan reaches in excess of $250,000 to have to file a Form 5500. […]
