Self Employed 401k Plans The Newest Way for Self Employed Individuals to Plan for Retirement

Self-employed individuals may be familiar with certain retirement accounts available to them such as Keoghs, Individual IRAs and Sep IRAs. Another, newer option is coming to the attention of many business owners. The Self Employed 401(k) makes saving for retirement easier, plus it offers a lending feature that is appealing to many business owners.

The Self Employed 401k is also called Individual(k), Personal 401k, Uni-k, Solo 401k and Single k. Business owners and self-employed individuals that do not employ W-2 employees, with the exception of themselves and their spouses, are eligible to open these accounts. Contributions are capped off at 49,000 per year, or 54,500 if the contributor is over 50 years old. As with personal IRAs, the Solo 401k can be set up as a traditional account, meaning that the contributions are deposited as pre-tax dollars, or as Roth accounts that take deposits from taxed income. In a traditional 401k program the entire funds, including money deposited and interest earned, are taxed when they are withdrawn, while only the interest earned is taxed when withdrawals are made from the Roth 401k plan.

Another important feature of the self employed 401k is the loan function. Although Keoghs, Individual IRAs and Sep IRAs cannot legally contain lending provisions, 401k plans can. The owner can withdraw up to 50 of the balance of the account, not to exceed 50,000. The loan is paid back with interest in accordance with an amortization schedule that is presented at the time the loan is taken. Usually the term of the loan is five years, but if the money is taken for special circumstances like purchasing a principle residence, then the loan could be extended up to 10-15 years. The loans are tax free and penalty free and require no credit checks. Taking a loan against the account can help business owners get through difficult financial times with little hassle. Before opening any type of retirement account, self employed people should seek 401k advice from a professional financial advisor to ensure they are making the best choice for their individual needs.