401(k)s for Business Owners & the Self-Employed

Entrepreneurs already know that there are plenty of options to create a retirement account. These plans, SEP and SIMPLE IRAs, can be the right answer for some business owners.

However, the Solo 401(k) (also known as Solo-k, Uni-k, One-participant k) may allow you to set aside more money for retirement. You have the opportunity to create a Traditional or Roth account as well as make both employee and employer profit-sharing contributions. You’re also allowed to make solo 401(k) contributions for your spouse, as long as they work in your business. A 401(k) can potentially turbocharge the retirement income your business generates.

Per the IRS, “The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both:

  • Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit:
    • $19,500 in 2021, or $26,000 if age 50 or over; plus
  • Employer nonelective contributions up to:
    • 25% of compensation as defined by the plan, or
    •  for self-employed individuals, see this calculation.”

Critical questions to consider include:

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