Welcome to 2018, where the self-employment rate is over 30% for millennials. Owning and operating your own company by providing a service or a product to those in need is a great source of pride. However, being self-employed presents a unique challenge to these individuals: how does one save for retirement?
When people think of 401(k) plans, the typical image that comes to mind is the common traditional employer sponsored plan. But what happens when you are the employer?
Should this mean that you aren’t awarded the same opportunities as an individual who works for an employer when it comes to saving for the future?
Have you thought of what tax benefits and additional source of income this would provide you and your company?
With a Solo Pension Plan, your nest egg for retirement is protected. Just like your salaried friends with employer sponsored 401(k) plans. With the number of self-employed individuals growing every year, the need for Solo Pension Plans is gaining momentum as well.
What is are Solo Pension Plans?
Solo Pension Plans are designed specifically for self-employed individuals. The Solo Pension Plan is a great option for self-employed people looking to reduce their business or businesses tax liability. Solo Pension Plans also provide an additional resource to money within the business itself.
While reducing your taxable income, this plan allows for safety and security to you as a business owner. This is because you’ll be putting money away for retirement simultaneously. The Solo Pension plan has another major perk. You are able to contribute more to the Solo Pension Plan than if you had a regular 401(k) employee base plan.
Solo Pension Plan Contribution Limits
2018 is a big year in the world of retirement plans. The IRS has changed the 2018 401(k) contribution limits. In the case of an employer sponsored 401(k) plan, the max 401(k) contribution limit for 2018 as an employee is $18,500. As an employer, the 2018 contribution limit is $36,500. However, as a self-employed individual, you’re both employee and employer.
After reaching the $18,500 employee contribution limit, you can make contributions as the employer. You are allowed to contribute up to 25% of the total earnings of your business. If you are a single-member LLC or sole proprietor, this figure is a bit lower at only 20%. These contributions can reach the total combined amount of $55,000 or $61,000 if you include any catch-up contributions. It’s also important to remember that any employer contributions are considered a deductible business expense.
The Solo Pension Plan is basically a SEP (simplified employee pension), where-as you would still get a check every month post retirement just like any other pension plans. But, if withdrawals are made before 59 ½ years old, you could be subject to applying the withdrawal as taxable income and incur more fees. The plan is set up for those self-employed business owners who are looking for a safer, more defined way to save their hard earned business profits. These are all about pre-tax savings, and big ones too.
Why a Solo Pension Plan?
As a quick summation of why choosing a Solo Pension Plan may be the best option for you as a self-employed business owner, we’ve outlined some of the reasons why a Solo Pension Plan is the way to go when it comes to saving for retirement.
Previously stated above, the contribution limits for a Solo Pension Plan are higher than that of a traditional 401(k) plan since you’re acting as both employee and employer. What if we told you that you could potentially double.
That’s right, you could double your contributions by hiring your spouse and allowing he or she to participate in the plan as well. As an individual, your spouse is able to contribute a maximum amount of $18,500 which is then followed by your basic employer contribution up to a total contribution amount of $55,000. Remember, catch up limits are still applicable if your spouse is eligible, meaning an additional maximum of $61,000 per year can be met by having your spouse participate in the plan as well.
It’s also worth mentioning that all of these contributions act as tax deferred growth. Solo Pensions Plans may be different than traditional 401(k) plans in a number of aspects, but one way that they’re similar is crucial to you getting the most bang for your buck. That is the fact that all of your contributions are pre-tax.
Rather than your income being taxed prior to being added to your solo pension plan, these figures are taken before your money is taxed. You’ll simply only pay taxes on any withdrawals from your Solo Pension Plan. (Remember: you may incur penalties and fees should any withdrawals violate the rules set down in the plan, such as withdrawing too early.
Lastly, if you’re still asking the question: “Why should I get a Solo Pension Plan?”, here’s another great feature to consider. With Solo Pension Plans, you maintain a lot of direct control over your retirement plan. You’re in charge of your contributions.
The flexibility that’s inherent with a Solo Pension Plan is unmatched- you can decide just how much money goes into your plan. You’re able to contribute as much (obviously adhering to the contribution limit) or as little as you’d like to your plan each and every year.
The Bottom Line
So, considering all of these fantastic features of a Solo Pension Plan, if you’re a self-employed individual, this may be the plan for you if you’re looking for a flexible and profitable retirement plan. Saving for retirement is important, whether you work someone else or not. Besides all of the other benefits that come from being your own boss, having the ability to participate in a Solo Pension Plan is definitely one of the best parts of owning your business.
In conclusion, when it comes to deciding whether or not a Solo Pension Plan is right for you, just remember these key points:
- Higher than average contribution limits
- Tax deferred growth
Are you ready to take the plunge and start making your money work for you? The Storick Group can offer you the best in 401(k) administration at prices so affordable, the other guys simply can’t compete. Our annual fees are as low as $65 per year- that’s unheard of!
We’re here to help you find the best retirement plan to fit you and your business’s needs. The Storick Group provides you inexpensive pension administration and is here to help you create a solid foundation for your future, today! Call now and get started on creating your own Solo Pension Plan or any other of the great 401(k) options available through our top-notch providers.