The IRS is increasing contribution limits for the Solo 401k! January 2020 begins a new tax-reducing year when the IRS increases Solo 401k contribution limits by another $500 (up another $1,000 if you are over age 50). You reach the full $63,500 contribution limit is by controlling your own retirement with a Solo 401k account. Through your Solo 401k account, you gain full control as both an employee and the employer/owner of your business. You also gain full control of what you can invest in.
When your spouse also participates in a Solo 401k, the potential contribution limit doubles to $127,000!
Your total Solo 401k potential annual contribution level increases to $57,000 (or $63,500 if you are age 50 or over). This is up from the 2019 allowable contribution of $56,000 or $62,000 for those 50 or older. The increased contribution limits for a Solo 401k continue its huge superiority over the traditional IRA for tax deferment. This year’s rise in the Solo 401k contribution limit further increases the tax advantage gap because the traditional IRA contribution limits remain unchanged from 2019 at the same $6,000 (or $7,000 if you’re age 50 or older).
If you are already set up with a Solo 401k retirement plan, you are good to go for increasing your tax-deferred contributions in January. If you don’t yet have a Solo 401k account but don’t want to miss out on another year of these financial advantages, you need to review the simple qualification requirements. Or you can further your education about why you want to take full control of your retirement account.
Three Types of Solo 401k Contributions
Your 2020 total increased Solo 401k contribution limits come from three separate funding sources. These work together for the full $57,000 tax deferred contribution available in 2020 (or $63,500 if you are age 50 or over).
- Employee contribution limit. This is the amount that comes from your salary or wages. These contributions are made before you pay taxes. The effect is to reduce your annual taxable income while also increasing your retirement savings. In 2020, this limit increases to $19,500 from $19,000 in 2019.
- Employer contribution. With a Solo 401k, you are your own employer. Therefore, you can potentially fund this portion up to the full limit of $57,000 (or $63,500 if you are age 50 or over). The limit is a combination of both the employee and employer contributions. The tax advantage here is the contributions are a business expense before paying taxes.
- Catch-up limit. This is how you increase the limit from $57,000 to $63,500. If you are over age 50, you are entitled to additional contribution of $6,500 in 2020 (up from $6,000 in 2019).
A Solo 401k Works for the Young, the Old, and the Independent
The young or older business owner could be driving for Uber or any one of the many possibilities out there. A more traditional woman could be running her own Avon business. And entrepreneurs have every reason to open a Solo 401k. Almost every independently operated business qualifies. The key qualification is being self-employed. It has nothing to do with running a multimillion-dollar business. And who doesn’t dream of being self-employed?
Today, tens of millions of Americans rely solely on an employer sponsored 401k as the source for their retirement income. Your money is in their account and limited to what they allow you to invest in (almost always Wall Street). The employer decides how much they contribute to your future financial security. The employer makes the rules.
By starting a small side gig, you can take full control of your retirement account to invest it any way you see fit. You no longer have to financially depend on big business for your retirement years. Nor do you have to depend on Wall Street to leave you a few crumbs after the big guys first take all they want. Anyone can take control of their financial future by investing in real estate, or the modern cryptocurrency economy, or green technologies, or anything else. Employers and Wall Street have no say in how you invest your Solo 401k.
Solo 401k Contribution Limits for 2020
The 83.2 million Millennials have a different view of how the world should be both today and tomorrow. They are also the financial backbone in today’s economy to make change happen. For the good of both themselves and to shape the future. One major change Millennials have already made is by changing employers often to work on projects of their own choosing rather than what they are told to work on. An after-effect of these decisions is leaving behind employer sponsored 401ks as they change jobs. These are 401ks that you still own but may no longer be managing. The Solo 401k is the perfect answer for consolidating your past accounts back into your full control. Also for investing them as you see fit. The answer is a rollover Solo 401k account.
There is also plenty of good news for Baby Boomers who are at or near the threshold of retirement. As you approach retirement, you have more options than you might be thinking about. You’re not ready for the rocking chair just yet because you have a lot of interests to keep you mentally and physically active. These usually become hobbies in retirement. Why not make your hobby into a small business that provides both a retirement income and a tax shelter?
A Solo 401k can even provide startup funding for a new business. And the catch-up contribution allowed with the Solo 401k is made for Baby Boomers. There is no reason why you can’t enjoy retirement while still earning an income doing what you want for another 10 or 20 years. It’s the answer to a fully funded retirement if you’re not quite there yet.
2020 Begins a Decade of New Opportunities
For the Millennial, for the Baby Boomer, along with freelancers and sole proprietors, the coming decade is the time to take full control of your retirement finances. The 2020 increase in contribution limits is one more reason to begin building your secure financial future as we head into not only this New Year resolutions but also the beginning of an entirely new decade. One of the best decisions for your future is taking full control with a Solo 401k.
Have questions about growing your retirement account? The 401k experts at Nabers Group will help you get your retirement funds into your control, where they belong.