Betterment Solo 401k: A Guide to Saving for Retirement as a Small Business Owner

As a small business owner, saving for retirement can be a daunting task, but it's essential for securing your financial future. You can contribute up to $57,000 to a Betterment Solo 401k in 2022, plus an additional 20% of your self-employment income.

With a Betterment Solo 401k, you can save for retirement while also reducing your taxable income. The plan allows you to make pre-tax contributions, which can lower your tax bill and increase your savings.

By contributing to a Betterment Solo 401k, you can take advantage of tax-deferred growth, allowing your savings to grow over time without being subject to taxes.

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To contribute to a Solo 401(k), you must file Form 5500 EZ. This form is used to report the plan's annual return and is typically due on July 31st of each year.

The Solo 401(k) has specific contribution limits, which vary based on your age. For 2024, individuals under 50 can contribute up to $69,000, while those over 50 can contribute up to $76,500.

To ensure compliance, it's essential to understand the different types of contributions, including elective deferrals and employer contributions. The contribution deadlines are also crucial, with the deadline for 2024 contributions being January 15th, 2025.

Here are the Solo 401(k) contribution limits for 2024 and 2025:

Retroactive 401(k) plans are now possible for solo 401(k) plans thanks to the SECURE 2.0 law.

Solo 401(k) plans are ideal for self-employed business owners with no employees, allowing them to act as both employee and employer for purposes of contributions.

The 2023 limits for elective deferrals are $22,500, or $30,000 if over 50, and employer contributions are capped at 20% of adjusted net earnings.

A retroactive solo 401(k) plan with both employer contributions and elective deferrals can be established, but the deadline for adopting a new plan after its first year is the due date of the individual’s previous year’s tax return (without extensions).

However, this new option won’t be available until 2024 for retroactively setting up 2023 plans.

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You can find answers to frequently asked questions about Form 5500 EZ in the relevant section.

Form 5500 EZ is a simplified version of the Form 5500, which is used to report employee benefit plans. The Form 5500 EZ is typically used by small plans with fewer than 100 participants.

Additional reading: Form 5500 for Solo 401k

To ensure compliance with Solo 401k rules, you should be aware of the distribution triggers. Solo 401k distribution triggers include separation from service, disability, and hardship.

Solo 401k distributions can be made in various ways, including in-kind distributions. In-kind distributions involve exchanging plan assets for cash or other assets.

Beneficiary distributions are also an important aspect of Solo 401k compliance. Beneficiary distributions are made to the beneficiaries of a deceased plan participant.

The deadlines for Solo 401k contributions and distributions are critical to compliance. The 2024 Solo 401k contribution deadline is typically March 15th of the following year, while the 2025 Solo 401k contribution deadline is March 15th, 2026.

Here are the Solo 401k contribution limits for 2024 and 2025:

Income limits also apply to Solo 401k contributions. For 2024, the income limit is $345,000.

Solo 401k distributions are subject to taxes, with pre-tax money growing tax-deferred until retirement. In retirement, withdrawals are taxed as regular income.

You can contribute up to $69,000 to a solo 401(k) in 2024, or $76,500 if you're over 50. This includes both employee and employer contributions.

As an employee of your own business, you can defer up to $23,000 of your earned income for 2024 or 100% of your compensation, whichever is less. Additionally, you can contribute up to 25% of your compensation as an employer.

Catch-up contributions of $7,500 per year are available for those over 50, which means you could potentially contribute $76,500 in 2024.

If you're employed at another company, these limits apply across the board, so you can't try to contribute additional money beyond these limits by having both a business and a day job.

Here's a breakdown of the contribution limits:

You can contribute up to $7,000 in 2024 if you're under the age of 50, or $6,500 if you're under 50 in 2023.

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A Solo 401(k) is a traditional 401(k) plan that covers a business owner (and potentially their spouse) with no employees, allowing them to make contributions as both the employee and the employer.

The Solo 401(k) offers a significant advantage, enabling an employee to save nearly 6x what they could otherwise save in an individual retirement account (IRA).

You can contribute up to $69,000 for 2024 if you're under age 50, and up to $76,500 for 2024 if you're over age 50, as an individual with a Solo 401(k) plan.

Here are the Solo 401(k) contribution limits for 2023 and 2024:

The income limit for a Solo 401(k) is $345,000 for 2024.

Rollovers are a crucial aspect of managing your 401(k) plan, especially when changing jobs or retiring. A Solo 401k Plan can accept rollovers from other retirement accounts.

You can roll over your SEP IRA to a Solo 401k, which can help you consolidate your retirement savings. This can simplify your financial life and potentially reduce fees.

A SIMPLE IRA Rollover to Solo 401k is also possible, allowing you to transfer your existing retirement funds to a more flexible plan.

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In-plan Roth Solo 401k Rollovers can also be done, which can help you convert some or all of your traditional 401(k) dollars to Roth dollars.

If you're still working for an employer with a 401k plan, you may be able to transfer your account to a Solo 401k, but check with your employer first.

If you have a 403b or 457b plan, you can also transfer those to a Solo 401k, potentially increasing your investment options.

Here are some rollover options for your 401(k) plan:

A solo 401(k) plan is a great option for self-employed individuals or business owners with no employees. It allows you to act as both the employee and employer, making it possible to contribute a total of up to $69,000 for 2024.

You can contribute up to $23,000 as an employee, or 100% of your compensation, whichever is less. As an employer, you can contribute up to 25% of your compensation to the account.

A unique perspective: Solo 401k and Employer 401k

If you're over age 50, you can make catch-up contributions of $7,500 per year, bringing the total contribution limit to $76,500 for 2024.

The contribution limits for a solo 401(k) are the same as those for a traditional 401(k) plan through an employer, with a maximum combined contribution of $69,000 if you're under 50 or $76,500 for those 50 and older.

Here's a breakdown of the contribution limits for a solo 401(k):

Keep in mind that if you're employed at another company, these limits apply across the board, so you can't try to contribute additional money beyond these limits by having both a business and a day job.

The solo 401(k) plan must be established by December 31 to qualify for the current tax year, and it's not available to statutory employees in a business.

With a Betterment Solo 401(k), you can enjoy some great benefits. You can contribute up to $57,000 per year, including a 20% employer match.

One of the main advantages is the flexibility to invest in a wide range of assets, including stocks, bonds, and ETFs. This allows you to diversify your portfolio and potentially grow your retirement savings.

Another pro is the ability to borrow from your account with a low-interest loan. This can be a helpful feature if you need access to cash for a short-term expense.

However, there are also some potential drawbacks to consider. For example, you'll need to pay taxes on withdrawals, which can reduce your retirement savings.

You'll also need to meet certain eligibility requirements, such as being self-employed or having a side hustle. This may limit who can take advantage of this type of account.

On the other hand, the ability to save for retirement and potentially reduce your tax liability makes it a worthwhile option for many people.

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