A Solo 401(K) unique tax-advantaged retirement savings plans for self-employed entrepreneurs in America. They should not hire any full-time employees to manage their lucrative business establishments to participate in this scheme. However, they can conduct their business operations in various ways, such as independent contractors, freelancers, or a one-person commercial outfit.
Jeffrey Small Arbor Financial– How to open a solo 401(K) plan?
Jeffery Small is a famous financial advisor from Florida and the best-selling author of “Turning Financial Planning Right-Side Up.” He has over 32 years of valuable industry-based experience in helping people execute lucrative investment strategies for post-retirement life. He is currently the President of Arbor Financial Services of Florida, Inc. This is an SEC-registered investment advisory firm and a franchisee of the Retirement Income Store.
According to the Jeffrey Small Arbor Financial team of specialists, the solo 401 (K) schemes resemble many of the salient features of employer-sponsored 401(K) plans. Many entrepreneurs operating self-owned businesses might want to participate in this retirement savings scheme. To do so, they need to fulfill the following conditions:
- Provide copies of business tax returns to prove their corporations are profit-generating concerns,
- Verify they have no employees on their business payroll except for their spouses,
- Search for online reliable financial brokers who specialize in these retirement schemes, and
- Fill in the necessary account application and plan adoption agreement.
When filing these two important documents, they should quote their Employer Identification Number (ERN). Then, they will need to file an annual report with the Internal Revenue Service (IRS) via Form 5500-SF. Once the online processing of these documents is complete, they can make monetary contributions to retirement saving account. However, they should make the pre-tax payments before the 31st December of every financial year. Their brokers will then offer them a series of financial securities to choose from to invest their money under the scheme. These could include company stocks, corporate bonds, mutual funds, exchange-traded securities, and index funds. In some cases, the market value of the financial assets in their Solo 401(k) retirement savings account might exceed $250,000.
Tax Advantages of the scheme
Entrepreneurs should know monetary contributions from their business income to the traditional Solo 401(K) retirement savings scheme are exempt from taxes. This helps to reduce the business tax liability they owe to the Internal Revenue Service (IRS). However, the authorities will classify their distributions under the scheme on their retirement as an ordinary income stream. Accordingly, they will charge taxes on this post-retirement earning at applicable rates. Alternately, the entrepreneurs can opt for Roth Solo 401(K) plans which provide no tax deductions on the contributions they make. However, the post-retirement monetary distributions they receive are tax-free.
The Jeffrey Small Arbor Financial team of specialists concludes that opting for a Solo 401(K) plan is a viable way for entrepreneurs to generate a post-retirement income stream. However, they should always read the fine print of the application form and plan adoption agreement their brokers provide. If the need arises, they should consult a reliable financial specialist.
