Turbocharge Retirement with a Solo 401(k)
Don’t worry about retirement. Save for your future with a solo 401(k).
With a traditional job, saving for retirement is simple. You enroll in your company’s 401K plan, and that’s it. As a VBO, you don’t have an employer-sponsored plan to rely on.
Fortunately, there’s a great option available that caters to the self-employed. You can enroll in a solo 401(k).
So, what is a solo 401(k)? It’s a 401(k) designed specifically for self-employed business owners with no employees. You can, however, use the account to cover your spouse. There aren’t any age or income restrictions, and you can contribute up to $56,000 this year. You can even throw in an extra $6,000 catch-up contribution if you’re at least 50 years old.
The solo 401(k) has several perks that make it better than other retirement options. For one, you can contribute a whole lot more to a solo 401(k) than you can to an IRA, for example. With the average IRA, you can only save up to $7,000 annually, which can make for a slow-growing retirement fund. You can contribute eight times as much with the solo 401(k).
Another awesome advantage of this kind of account is that you have a wider pool of investment options.
With an employer-sponsored 401(k) you’re stuck with whatever meager options they provide you. Typically, it’s just the standard stocks, bonds and mutual funds. But with a solo 401(k) the options are plentiful. You can invest in real estate, precious metals, joint ventures, private lending and more.
Here’s another perk: you have the ability to take out a loan. As a work from home freelancer, your income isn’t always predictable.
Sometimes, clients default on payments. (By the way, have you read our blog on ensuring you get paid as a VBO? If not, check it out). Emergencies happen. And unanticipated expenses pop up. If you need cash, you can borrow up to $50,000 or 50% of your vested account value – whichever is lower of the two. This participant loan option isn’t subject to tax penalty, and you can enable a longer payback period.
There are lots of other advantages to having a solo 401(k) too.
Here’s some recommended reading, so that you can learn more:
- NerdWallet: What is a Solo 401(k)
- InvestorJunkie: 5 Advantages of a Self-Directed Solo 401(k) Plan for the Self
- Employed Emparion: The Top 10 Advantages of a Solo 401k Plan
Consult an online broker to open your solo 401(k), and don’t worry about the future. With this plan, you’ll be able to save up for retirement with ease, and you’ll enjoy lots of perks along the way!