Starting your own business is a lifetime dream for many people. As good as it can be setting your own hours, determining the type of work you do, and keeping all of the profits, starting a business has more rewards that you haven’t even yet thought about. Retiring wealthy with a Solo 401k is one of the biggest rewards!
If you think financial freedom and taking control of your destiny are worth pursuing, now may be the perfect time to take the leap by starting a business.
What Starting a Business Can Mean for You
Many Americans are fed up working for others. Especially working for big greedy corporations. Starting your own business is a growing trend among Americans. According to the Bureau of Labor Statistics (BLS), 44 million workers, or nearly one of every three Americans, are self-employed. The reasons these people give are far-reaching, but typical reasons at the top of the list include:
- Being employed by others does not offer the level of pay that being self-employed does.
- Employers have been cutting back on traditional employee benefits.
- Wage growth has been minimal, despite rising costs.
- Technology makes it much easier to start and run a business (think web-based businesses).
- It provides an alternative revenue stream when you do work for a big corporation.
- You can turn a passion such as photography or another hobby into a money-paying business!
It’s easier and more practical to start and run your own business than ever before.
According to a Gallup’s Jobs Survey, 57% of sole proprietors work in these self-employment fields:
- Professional services
- Repair services
- Personal services
- Construction
- Administrative services
- Retail
Here are a few side hustle statistics for 2022:
- The U.S. side hustle market is valued at over $2.58 trillion.
- Three-quarters of people love their side hustle.
- Side hustlers dedicate an average of 12 hours per week to their business to earn a median of $1,122 per month.
- At the same time, 4.7% of side hustles make over $10,000 per month.
- Almost 50% of people with a side hustle do it because they want to, not because of financial constraints.
- At the same time, one-third run a side-hustle because they need to supplement their income.
- 32% of side hustlers spend just 5-10 hours per week on it.
- 50% of millennials have a side hustle.
- 70% of Gen Zs have a side hustle.
- 83% of Americans will perform gig work by 2027.
There are 25.7 million “non-employer” (only one person) small businesses in the U.S. That makes up 81% of them. Of those, 60% are running their small business as a side hustle.
The self-employed find that they have more freedom and flexibility, along with the ability to pursue their passion.
Improve Your Retirement Plan By Starting a Business
When you work for yourself, you must take responsibility for your own retirement plan. Fortunately, being self-employed offers a much better retirement planning opportunity than almost every large employer offers – namely the Solo 401k. The IRS calls this a one-participant plan that offers every benefit available — without the restrictions that large corporations impose on your financial freedom, especially by limiting what you can or cannot invest in!
As the owner/employee of your company, you gain access to a Solo 401k retirement plan. That is critically important when you consider that the 2020 Retirement Confidence Survey by the Employee Benefit Research Institute found that 44% of respondents were only somewhat confident that they would have enough money to take care of even basic expenses during retirement.
The Solo 401k is for businesses with no employees. If you are a sole proprietor or share ownership with other individuals but don’t have rank-and-file workers, this plan is a great fit. A key benefit of the Solo 401k is the ability to maximize your contributions: You are not limited by employee contribution restrictions under the actual deferral percentage (ADP test) as you would be by a traditional large business 401k plan.
Setting up a Solo 401k retirement plan is easy and allows for much larger tax-deductible contributions than an IRA or large employer 401k. Plus it puts you in control with access to a world of alternative investment options.
By starting a business, a Solo 401k becomes an investment in your golden years — often a sounder investment than your day job. The money you contribute will be eligible for distribution at age 59½, regardless of your current position. You’ll be compounding interest on money that is growing and working for you. Whether it is your primary retirement account or a backup account, a Solo 401k is a smart choice.
Who is eligible for a Solo 401k plan?
Solo 401k eligibility is limited to the following:
- The plan participant must be the business owner who has no employees.
- The business owner’s spouse may also participate if they are employed by the business.
- Business owners may be self-employed independent contractors, sole proprietors, limited liability companies (LLCs), partnerships, or S Corps.
- The participant can be of any age and make any amount of income.
Solo 401k plan contributions
A Solo 401k has the same rules and conditions as any other 401k plan. You can make contributions to the plan as both a business owner and an employee.
The rules regarding Solo 401k contributions are:
- Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit.
- The annual contribution limit is $20,500 in 2022, or $27,000 if over age 50; plus employer contributions up to 25% of compensation.
- Total contributions to a participant’s account cannot exceed $61,000 for 2022 or $67,500 if age 50 or over.
- Contributions are tax-deductible.
The Roth Solo 401k is another good option.
With tax-free earnings and large contribution limits, the Roth Solo 401k is a useful addition to the retirement-savings toolbox. Each Solo 401k by Nabers Group automatically includes a Roth 401k sub-account at no extra charge.
With a Roth Solo 401k, the main difference is when the IRS takes its cut. You make Roth contributions with money that has already been taxed — and then the earnings are 100% tax-free. At age 59½, you can live off your Roth Solo 401k assets without being concerned about owing taxes.
You never have to worry about taxes on your Roth Solo 401k funds during retirement.
Many Benefits to Starting a Business
Let’s start with the tax benefits. A big Solo 401k benefit is the flexibility to choose when you want to deal with your tax obligation. You have the freedom to move taxes between your self-paid employee salary and the employer contribution that you also control. With a Solo 401k, all contributions you make as the “employer” are tax-deductible to your business, with the earnings growing tax-deferred until withdrawn. And for contributions you make as an “employee,” you have even more tax benefits. Your employee “deferral” contributions reduce your personal taxable income each year. You may even be able to use the tax deferral to place yourself in a lower tax bracket. All the while, your deferred taxes are growing and compounding in your retirement account.
You also have the option to make some or all of your employee deferral contributions as a Roth Solo 401k contribution. The Roth Solo 401k employee contributions will not reduce your current taxable income, but your distributions in retirement will be tax-free.
The Solo 401k has the highest contribution limits allowed, which creates the most tax benefits for a retirement account.
And your investment options are unlimited…
You can invest in almost any type of investment opportunity that you discover or already know about — the only limit is your imagination. All income and gains from your investments flow back into your Solo 401k completely tax-free to be reinvested and compound the growth. Making investments with your plan is fast and simple. As your own trustee of the Solo 401k, you have complete checkbook control over your retirement assets. This allows you to make alternative investments, as well as traditional investments, tax-free and without a custodian. The only investments you cannot make with a Solo 401k are collectibles and any transaction that involves a disqualified person.
Sacrifice nothing, compromise nothing, and gain the fast-mover advantage required of all successful investors.
And there is a participant loan benefit…
You can take a tax-free loan from your 401k funds of $50,000 or 50% of your account value (whichever is less). Use the money for any purpose! You can take out the loan without worrying about a hardship distribution or an early withdrawal that could trigger taxes and penalties. As you repay the loan, you not only avoid taxes and penalties but also pay interest to yourself as a return investment. A participant loan lets you borrow money from your retirement savings and pay it back to yourself over time, with interest — the loan payments and interest go back into your retirement account. You can have more than one loan outstanding at the same time. However, under IRS rules, your total loan limit for all loans is still restricted to $50,000 or 50% of your account balance, whichever is less.
Be your own Bank!
And still more benefits…
Retirement account consolidation through Rollovers. Your Solo 401k accepts rollovers of funds from other retirement accounts, such as an IRA, a SEP, or a previous employer’s 401k plan. There are several reasons why you want to do this. To start with, funds in dormant retirement accounts often receive little or no attention. Those assets are not likely to earn as much as they would in a single Solo 401k under your full attention. Consolidated funds are also much easier to manage when you are making a large investment such as buying a rental property.
Get all the benefits of a Solo 401k by starting a business!
Getting Your Solo 401k Started
If you are starting a business, you have several options for saving for retirement and also saving on your taxes. You don’t have to settle for a plain-vanilla IRA. The Solo 401k allows for much higher contributions which reduce your tax obligations today while building for your retirement tomorrow. The Nabers Group Solo 401k offers you a choice of a Roth account or a traditional account, or both. The Solo 401k should be considered by anyone thinking about starting a business or that already has self-employment income.
We believe you should control your financial destiny. With money so interwoven through every area of our lives, financial freedom can improve your life experience, health, and happiness. We feel it is our mission to help you protect and grow your money, grow your income, and control your destiny.
Solo 401k Contribution Calculator
Set Up Your Self-Directed Retirement Plan and Start Investing In Alternatives
The thought of a looming recession has many people concerned about the possibility of unemployment and layoffs that come with it. Starting a business is the best hedge against a recession. But that’s not the only reason to be thinking about a Solo 401k.
Ongoing fluctuations in the stock and bond markets, along with a breakdown of investor confidence in corporate America, are driving the demand for alternative investments with greater choice for retirement accounts. Investors now realize they can invest in real estate and other non-traditional assets using their retirement accounts.
Setting up a Solo 401k retirement plan is easy and allows for tax-deductible contributions much larger than an IRA or employer 401k. Importantly, it puts you in control with access to a world of alternative investment options.
