Having joined the ranks of the self-employed by co-founding my own firm in 2007, I no longer had the option to contributing to my previous employers 401k plan.
I has officially started my own small business and was now open to a slew of retirement plan choices.
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.
I initially choose the SEP IRA for the first several years of running my own business, but then switched to the Solo 401k 2 years ago. Now that I have more than one employee, I’ll be setting up a traditional 401k this year.
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. Initially my business was structured as a sole proprietor so setting up a Solo 401k seemed like it made a lot of sense. Unlike traditional 401ks, 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. If and when I have to file a form 5500, I won’t complain that much. [Read more…]