Solo 401k LLC: Retirement Planning for Self-Employed Individuals

As a self-employed individual, you have the freedom to create your own schedule and pursue your passions, but it can be challenging to save for retirement. Solo 401k LLC plans offer a flexible and tax-efficient way to save for retirement.

One of the key benefits of a Solo 401k LLC plan is that it allows you to contribute up to 20% of your net self-employment income, or $57,000, whichever is less, in 2022. This is a significant advantage over traditional 401k plans, which typically have lower contribution limits.

With a Solo 401k LLC plan, you can also make catch-up contributions of up to $6,500 if you're 50 or older, allowing you to save even more for retirement.

A solo 401(k) plan is a traditional 401(k) plan covering a business owner with no employees, or that person and their spouse.

It's not a new type of 401(k) plan, but rather a specific application of the traditional 401(k) plan rules and requirements.

These plans have the same rules and requirements as any other 401(k) plan, and are sometimes referred to as a "Solo 401(k)" or "One-participant k".

A solo 401(k) plan is a type of retirement plan designed specifically for business owners with no employees.

You can't contribute to a solo 401(k) if you have full-time employees, but you can use the plan to cover both you and your spouse.

A solo 401(k) is an individual 401(k) designed for solo workers, offering flexibility and potential tax benefits.

Here are some other self-employed retirement plan options you might consider:

Try using a retirement calculator to estimate your savings and see how a solo 401(k) could fit into your overall retirement plan.

To qualify for a solo 401(k) plan, you must be a business owner with no employees, or you and your spouse.

The eligibility rules are simple: there's no age or income restriction, but you must be a business owner with no employees.

You can't contribute to a solo 401(k) if you have full-time employees, but you can use the plan to cover both you and your spouse.

Here are the key eligibility rules:

In fact, IRS rules say you can’t contribute to a solo 401(k) if you have full-time employees, though you can use the plan to cover both you and your spouse.

A Solo 401k LLC offers a range of benefits that can help you grow your retirement savings.

With a Solo 401k, you can contribute up to $56,000 in 2019, making it a great option for those looking to maximize their retirement savings.

Tax-deductible contributions and tax-deferred compound earnings can help your money grow over time.

You can also invest in a variety of assets, including LLCs, real estate, precious metals, and cryptocurrencies.

This flexibility can help you diversify your portfolio and potentially increase your returns.

A Solo 401k LLC is a protected investment, meaning your account is safe from creditors, even if you have personal debts or bankruptcies.

You can invest in a New Mexico LLC to open up even more investment possibilities.

Here are some of the key benefits of a Solo 401k LLC:

Contribution limits in a solo 401(k) plan are based on your compensation, which is your earned income as a self-employed individual. You can contribute up to 100% of your compensation to the plan as an employee, and your business can contribute up to 25% of your compensation as an employer.

The total contribution to your account cannot exceed $69,000 for 2024, not counting catch-up contributions for those age 50 and over. If you have another job and participate in its 401(k) plan, your limits on elective deferrals are by person, not by plan.

Here's a breakdown of the contribution limits for self-employed individuals:

As a self-employed individual, you must make a special computation to figure the maximum amount of elective deferrals and nonelective contributions you can make. Use the rate table or worksheets in Chapter 5 of IRS Publication 560 to calculate your allowable contribution rate and tax deduction.

As of 2024, the tax code allows for tax-deferred or Roth contributions to individual 401(k) plans.

You can choose to make tax-deferred contributions, which reduce your taxable income and allow the money to grow tax-free until you withdraw it. However, when you take the money out of the account, it will be taxable as income and potentially subject to a 10% penalty if you're younger than 59.5.

Tax-deferred contributions are adjustments to income rather than Schedule C deductions, meaning they save you money on income tax but not self-employment tax.

Roth contributions, on the other hand, do not provide any tax savings immediately. However, when you ultimately take distributions from the plan, they will be entirely tax-free, if you are at least age 59.5 and it has been at least 5 years since the first day of the calendar year in which you first made a Roth contribution to the plan.

Here's a summary of the key differences between tax-deferred and Roth contributions:

If you want to make Roth contributions, be sure to check with the brokerage firm(s) that you're considering, to make sure that they allow for such.

The annual contribution limit for a one-participant 401(k) plan is $69,000 for 2024, with a catch-up contribution of $6,500 for those 50 and over.

You can contribute up to 100% of your compensation to the plan as an employee, but total contributions to your account cannot exceed the annual limit.

A business owner can contribute both elective deferrals and employer nonelective contributions to the plan.

If you're self-employed, your compensation is your net earnings from self-employment, minus one-half of your self-employment tax and contributions for yourself.

Your elective deferral limit is by person, not by plan, so if you have multiple 401(k) plans, you'll need to consider the limit for all elective deferrals you make during a year.

The contribution limit for self-employed individuals requires a special computation to figure the maximum amount of elective deferrals and nonelective contributions.

You can make an employee contribution of $23,000 for 2024, and an employer contribution equal to 20% of your net earnings from self-employment.

The employer contribution is limited to half of the difference between your net earnings from self-employment and the employee contribution.

Here's a breakdown of the contribution limits for a one-participant 401(k) plan:

The total contribution limit is the combined total of employee and employer contributions, which is $69,000 for 2024.