Are You a
Self-Employed Taxpayer?
A Solo 401(k) Retirement Plan Offers Substantial Tax
Savings
As a self-employed taxpayer, you may wish to consider
a sole-owner 401(k) retirement plan. As an employer, you may contribute up
to 25 percent of your total income to your retirement plan, and, as an
employee, you may also contribute up to an additional $15,000 in 2006.
Self-employed taxpayers can contribute to a sole-owner 401(k) retirement
plan as both an employer and as an employee. As an employer, a sole
proprietor may contribute up to approximately 20 percent of net income to
a retirement plan. Also, and, as an employee, the sole proprietor
may also contribute up to an additional $15,000 in 2006 ($20,000 if age 50
or older).
Single shareholder/employees of a corporation who are paid a salary can
defer the same $15,000 ($20,000 age 50 or older) of their salary into
their 401(k) account. The
corporation can contribute up to 25% of each employee's salary to that
employee's account.
Only a sole proprietor or sole shareholder/employee,
plus a spouse, may contribute to to a solo 401(k). If the business
has just one other non-spouse employee, the solo 404(k) is not an
allowable option.
Your maximum contribution to an individual 401(k) plan is the lesser of
$44,000 or the sum of the employer and employee maximums. This retirement
plan provides you with an additional opportunity to maximize your yearly
retirement plan contribution compared to most other plans available for
the self-employed. As an added bonus, this type of plan, unlike other
retirement plan options, allows participants to take out loans from plan
assets.
