|
Recent pension reform legislation has created new retirement vehicles to
help small business owners shelter a significantly greater portion of their
income from taxation that they were previously unable to do with
conventional business retirement plans. A Solo 401 (k) is especially
appealing for the self-employed and other small businesses that employ no
full-time employees except the owners and their immediate family members.
This type of plan typically works well for participants who make $40,000 -
$200,000 per year. Before you elect a Solo 401(k), be sure you don't
intend to add full-time permanent employees in the near future.
Unlike a traditional 401(k), these plans are designed specifically for
small and self-employed businesses. Financial service providers refer
to these new plans as the Uni-K, the Self-Employed 40-1(k), the Mini-401(k),
and the Solo 401(k). These plans may be adopted by
sole-proprietorships and small businesses (including partnerships,
S-Corporations, LLCs and LLPs, provided the only eligible plan participants
are the business owners and their family. |
|
A 401k plan is a tax-deferred investment and
savings plan that acts as a personal pension fund for employees. It allows
employees of corporations and private companies to save and invest for their
own retirement. In a 401k plan, you authorize pre-tax payroll deductions to
be invested in mutual funds or other investment options offered by your
company's plan. Both the contributions and the investment earnings can grow
tax-deferred until withdrawal (assumed to be retirement), at which time they
are taxed as ordinary income. 401k s were established by the federal
government in 1981 to encourage workers to establish retirement savings
plans. The name 401k refers to the relevant section in the Internal Revenue
Code.
In some cases, your employer may make matching contributions to your
retirement plan. If so, here is your chance to take advantage of immediate
returns. You can make the most of your retirement savings by
contributing the maximum amount allowed by the IRS. The key to maximizing
your retirement plan is to take advantage of the compounded growth of your
tax-deferred earnings.
Rollover
You can roll your 401(k) into an IRA and keep your
retirement nest egg working for you when you change jobs or retire. A direct
rollover from your company-sponsored plan to a Traditional IRA maintains the
tax-favored status of your retirement account, avoiding penalties or
mandatory tax withholding. |
