A Solo 401(k) plan is the perfect retirement account for small business owners and self-employed individuals. This type of account offers many benefits, such as tax deductions on contributions, tax-deferred growth and the ability to borrow against your account balance, not to mention unlimited investment options. If you have self-employment income, a Solo 401(k) might be a great tool as you explore retirement account options.
What is a Solo 401(k)?
A Solo 401(k), also referred to as a one-participant 401(k), a Solo-k, a Uni-k, and a one-participant k, is a traditional 401(k) plan covering a business owner with no employees, or that person and his or her spouse. These plans have the same rules and requirements as any other 401(k) plan. (IRS, 2022)
A Solo 401(k) is a retirement plan for business owners who have no other full-time employees other than the owner and, if married, their spouse. A Self-Directed Solo 401(k) plan is ideal for those who generate self-employed income and are interested in generous contribution limits that can grow tax-deferred. You will manage your own investments and have the ability to invest beyond stocks and bonds with high contribution limits.
While not everyone may qualify for a Solo 401(k), it is a fantastic option for those that do qualify. In this article, we’re going to look at the benefits of a Solo 401(k), as well as some things to keep in mind if you decide that the Solo 401(k) is right for you.
Investing Options with a Solo 401(k)
When it comes to investing for your Solo 401(k) plan, there are a few different options to choose from. You can invest in regular things such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs), however, with a Rocket Dollar Solo 401(K), you are able to invest in alternative assets such as real estate, private companies, startups, crypto, and much more!
Alternative assets can be a great investment choice for those looking to build long-term wealth. By investing in alternative assets, you can provide yourself with unique opportunities that may not be available through traditional investments.
For example, by investing in real estate you can gain exposure to the housing market and potentially see larger returns than you would if you invested in stocks or mutual funds. Additionally, by investing in private companies or startups you can get access to some of the newest and most innovative businesses around. And finally, by investing in crypto you can gain exposure to the growing cryptocurrency market.
As with any investment choice, it is essential to do your research before diving in. Ensure you understand the risks and rewards associated with the alternative assets you are considering. If you do your homework and feel comfortable with the risks involved, then alternative assets could be a great option for your Solo 401(k)!
2022 Solo 401(k) Contributions
Solo 401(k) contribution limits for 2022 will be $56,000 or 100% of your compensation, whichever is less. This limit applies to both Roth and pre-tax contributions. If you are age 50 or older, you can make an additional $6,000 in catch-up contributions, for a total of $62,000.
One of the biggest benefits of a Solo 401(k) is the tax deductions on contributions. For example, you can deduct your contributions from your taxable income, which can save you quite a bit of money. Also, your Solo 401(k) contributions can grow tax-deferred, which means you won’t have to pay taxes on the growth until you withdraw the money in retirement.
Important Things to Keep in Mind
There are a few things to keep in mind with a Solo 401(k), primarily that you are ultimately responsible for the administration and management of the plan. Rocket Dollar has built tools to make this process easy, and for most people, the actual management of the plan itself is limited to a few minutes a year.
Another thing to keep in mind when investing with a Solo 401(k), or any Rocket Dollar account, is that the investment decisions are yours, which means that you must ensure that you are not engaging in a prohibited transaction, or investing with a disallowed party. Our team has created a fantastic knowledge base that dives deep into what you can and can’t do with our accounts. Of course, if you have any questions or concerns at any time, our support team is a quick call or email away.