This post 5 Steps To Retiring Rich (Step 3) appeared first on Daily Reckoning.
So far in this special series on retirement accounts we’ve talked about:
Step 1: The two basic types of 401(k) plans and
Step 2: How to handle them when you leave your employer.
Today is Step 3. I’m going to clue you into another type of 401(k) plan that very few people talk about.
As self-employed person, I’ve been personally using this type of retirement plan for years now. It’s already helped me keep more than $400,000 in income away from Uncle Sam’s greedy hands.
It’s called a Solo 401(k) or an Individual 401(k).
To use one, you have to own a business and you can’t have any employees other than your spouse.
You can be a sole proprietor … a partnership … a corporation … it doesn’t matter.
Remember, even if you have a regular job, you can also still have a side business or some other form of self-employment income to qualify.
Solo 401(k) plans have many of the same features as their regular brethren.
For example, you can deduct your contributions.
Based on where you decide to open the plan, you’ll also have a certain menu of investment choices, too. This will typically be an assortment of mutual funds.
And like regular 401(k) plans, your employee “elective” contributions can’t exceed a maximum of $18,000 in 2017 or $18,500 in 2018. ($24,000 and $24,500, respectively, if 50 or older.)
Also note that this limit applies across all your 401(k) accounts.
In other words, if you have a regular 401(k) account with a full-time job and you also have a Solo 401(k) for your side business, you can’t contribute more than the limit across both 401(k) plans.
Again, that’s just your elective contributions though.
Here’s what makes Solo 401(k) plans so attractive:
** They allow your employer — i.e. YOU — to make additional profit-sharing contributions every year.
** And in some cases, it would even be possible to designate all the money as non-elective contributions.
Here’s how it all unpacks …
As the employee of your own business, you can contribute up to $18,500 to your Solo 401(k) in 2018.
But as your employer, you can kick in as much as 25% — up to a total limit of $54,000 in 2017 or $55,000 in 2018.
And if you’re 50 or older you can still add in the extra $6,000 catch-up amount getting you to $60,000 and above! (Complete details on all the rules and calculations via the IRS here.)
To take full advantage of a Solo 401(k) you’ll have to earn a significant amount of money in any given year.
Still, once you add it all up, Solo 401(k) plans offer the most generous total contribution caps available just about anywhere.
Moreover, if you happen to have a regular job and a side hustle, the ability to use non-elective deferrals in the Solo 401(k) can further slash your taxes and provide a tremendous extra retirement savings option.
To a richer life,
Nilus Mattive
Editor, The Rich Life …read more
Source:: Daily Reckoning feed
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