A Solo 401k is such a flexible retirement and investment vehicle that this is another in a short series of blogs showing business owners and entrepreneurs a few of the tremendous and unique financial advantages available only to them. Along with photographers, this series should be of great interest to many other small business owners such as bush plane pilots, travel bloggers, videographers, influencers, and many other independent business people.
Unique Advantages of a Photographer 401k
Photographers have a keen eye for the unique. Their combined artistic eye and technical skills captures and shares perspectives of people, places, landscapes, food, and much more of what other people would never see without their photos. Photographer Solo 401k retirement accounts, too, are all about gaining financial advantages that others never see. Unique about investing with a Solo 401k is that the landscape of possibilities is limitless.
After you browse through what other small business retirement plans offer (SEP IRA and SIMPLE IRA), be sure to take your time learning about everything a Solo 401k offers photographer entrepreneurs. There are many benefits making Solo 401k accounts much better than the other small business retirement plans and especially much better than a traditional IRA account.
We’ll start with the contribution limits. Solo 401k accounts allow you to save much more money towards your retirement compared to any other account. The maximum for 2020 is $63,000 in tax-deferred contributions. This includes $57,000 if you are under the age 50 but can include an additional $6,500 “catch-up contribution” for those over age 50.
Solo 401k Contributions
There are two parts to the contribution. From your salary, you can contribute up to $19,500 ($26,000 if over age 50). This amount generally increases every year. Then your business makes a contribution of up to 25% of compensation as defined by the plan (which you write off on your business taxes). You make these contributions either tax deferred or after paying taxes with a Roth account. These are great retirement accounts for high wage earners and entrepreneurs such as photographers wanting to put more money away for retirement.
But that’s not even half of the story…
Pay Fewer Taxes Than Ever Before
What has been your experience with the Tax Cuts and Jobs Act of 2017? Did doubling the standard taxpayer’s deduction do everything that you had hoped for? Or did the loss of itemized deductions such as Mortgage interest, Medical expenses, Charitable contributions, and Home Equity Loan interest (on under $100,000) leave you paying more taxes or even push you into a higher tax bracket?
The fact is that the tax cut benefited businesses more than the average taxpayer in many situations. Something you should know as an entrepreneur is that you can maximize that tax reduction on your business side and your personal retirement side with a Solo 401k. To start with, the business contribution to your Solo 401k is deductible from business taxes.
That means along with the reduced tax rate from the 2017 tax cut, a Solo 401k further lowers business taxes while at the same time, significantly enhancing your personal retirement account with tax-deferred funds. Keep in mind this tax break is available even if you work as an employee for another company and even if you contribute to that employer’s matching 401k plan (saving taxes there also). These are not risky tax loopholes. These are fully legitimate tax reduction strategies amounting to more benefits than you’ll find with any other small business retirement plan.
Photographer 401k Benefits Continue
Another great benefit coming with a Solo 401k is that it allows you to take out a loan without incurring any fines or fees. You can borrow the lesser of $50,000 or 50% of your account balance. This is a benefit no other retirement account allows. You can use these funds anyway you choose. Invest in new state of the art photography equipment, open the retail office you’ve always wanted, or take that well deserved vacation.
It also offers more asset protection. Depending on state laws, other retirement accounts aren’t always fully protected from creditors or bankruptcy courts. However, a Solo 401k is fully covered. There are only four events when someone can get at your Solo 401k account. 1. Qualified Domestic Relations Order (QDRO). 2. The IRS can collect owed income taxes. However, state and local tax authorities cannot collect. 3. The federal government can collect fines and penalties for crimes you commit. 4. If you do something wrong to the plan, a civil or criminal judgment can result with you losing all or part of your benefits.
- To put the “INDIVIDUAL” back into your individual retirement arrangement (account).
- Immediate access to your own assets with full decision-making authority.
- Clearly understand that you must diligently manage these funds to prevent them from being treated as distributions.
- To stop paying transaction and asset based fees to a financial advisor that severely limits your investment options.
- Have all profits from your investments build your retirement account tax-deferred.
- Earn compounded earnings including the compounding of deferred tax dollars.
- Your retirement account will become more diversified than it could ever possibly be when it’s not on Wall Street.
Investing as You Want – Not as You’re Told
The great thing about Solo 401ks is that you have all of the freedom you need to manage your investments as you see fit. You’re not restricted to investing only in traditional retirement account assets. You can invest directly in almost any private business of your choice, or real estate, or cryptocurrencies, or just about anything that you think will earn you more than what Wall Street may or may not allow you to keep.
By thinking “out of the box” with a Solo 401K account, your foundation of wealth for those fast-approaching retirement years could become much more satisfying. Just like the life of an entrepreneurial photographer, the solo 401k offers “focused clarity” into your financial future as only you can see it. Why not also make your retirement years the best they can be?
No one cares about your money more than you do – nor should they!
Have questions about your Solo 401k? Solo 401k experts at Nabers Group will help you get your retirement funds into your control, where they belong