The Solo 401(k)
Plan
Can Increase Contributions for Some Self-Employed Business
Owners
As a self-employed taxpayer, you may contribute to a sole-owner 401(k)
retirement plan as both an employer and as an employee. As an employer,
you may contribute up to 25 percent of your total income to your
retirement plan. As an employee, you may also contribute up to an
additional $14,000 in 2005 ($18,000 if age 50 or over). The 2006
contribution limits are $15,000, or $20,000 for a participant age 50 or
older.
Your maximum contribution to an individual 401(k) plan is the lesser of
$42,000 or the sum of the employer and employee maximums. This provides
you with an additional opportunity to maximize your yearly retirement plan
contribution.
Unlike other retirement plans such as SEPS and SIMPLEs, an individual
401(k) plan allows you to take out loans from plan assets, so your 401(k)
can also provide additional capital on occasion for the business.
The Solo 401(k) can be used by a sole proprietor or a sole shareholder of
an S corporation and can cover a spouse as well. It can also be used
by husband-and-wife
partners in a two-partner partnership or
two-member LLC.
