Time to Open Your 2021 Solo 401k or IRA Account

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2021 is quickly coming to a close. If you still want all the financial and security benefits that come with a Solo 401k, you must open your Solo 401k by Dec. 31, 2021, to make contributions for the 2021 tax year. Getting started is as simple as filling out the application but what is important is that your Solo 401k plan documents are executed/signed by 12/31/2021. After receiving your application, Nabers Group typically only needs 1 or 2 hours to prepare and deliver the documents back to you. Still, we need to obtain your tax ID number as well as prepare your plan and trust. There is time but it is running out before the Dec. 31, 2021 deadline!

Sign the Solo 401k before the end of 2021

Your Solo 401k plan becomes effective as of January 1, 2021, even if you adopt the plan in December 2021. You are still able to make contributions for any self-employment income earned and reported for 2021. 

2021 is the Year to Take Your Maximum Tax Savings

Setting up a Solo 401k is a powerful tax planning tool. Solo 401ks are fully compliant with the IRS rules. With Nabers Group, the Solo 401k setup process is simple and straightforward. 

Although it is the end of the tax year, as soon as you setup your Solo 401k, you will be entitled to make full employee and employer contributions up until your tax return date in 2022, plus extension dates. 

Contribution limits to a Solo 401k are remarkably high. For 2021, the max is $58,000 and $64,500 if you are 50 years old or older. This is up from $57,000 and $63,500 in 2020. This limit is per participant. If your spouse is also earning money from your small business that means they can also contribute up to the same amount into the Solo 401k. If you are both 50 years old or older, your joint contributions could be up to $129,000 per year!

Solo 401k contributions are much higher than all other retirement plans. Traditional and Roth IRA limits are just $6,000. The catch-up contribution is $1,000 more if you are 50 years old or older. The IRS increases contribution limits frequently as a ‘cost of living’ to keep up with inflation. Therefore, it’s a good bet you’ll see Solo 401k contribution limits continue going up over time ($61,000 plus a $6,500 catch-up contribution for those 50 or older in 2022).

Simple and Easy Solo 401k Setup Process

The setup process begins when you complete the application. Opening a Solo 401k account requires two elements of qualification:

  1. You must own a business.
  2. Your business must have zero employees (employees defined as those who work for you more than 1,000 hours per year and receive W2 wages).

As soon as we complete the documents and have your tax ID number, you sign the documents to officially open your Solo 401k. You are now ready to fund your account with rollovers and/or contributions.

You can open a bank account, a brokerage account, or both to hold your Solo 401k funds. We can also recommend banks and brokers that are experienced with Solo 401k accounts. 

Full control of your retirement

You can begin investing in what you want. You are also ready to take full advantage of the 2021 tax benefits that come with your Solo 401k!

The Self-Directed IRA Alternative

If the Solo 401k isn’t for you, the Self-Directed IRA might be the right answer. You can make 2021 IRA contributions until April 15, 2022. Common reasons why a Solo 401k doesn’t work for some retirement investors is they either don’t have a business needed for a Solo 401k or they have employees that disqualify the Solo 401k option. 

A Self-Directed IRA is one of the least understood retirement savings options. People simply don’t understand the significant differences between a traditional IRA and a Self-Directed IRA. Part of the misunderstanding comes from the fact that there are many different IRAs available.

Although the same basic IRS rules govern all IRAs, a Self-Directed IRA is a distinct type of retirement account, even different in several ways from traditional IRAs. The differences don’t come so much from the Internal Revenue Code as they do from the marketing hype put out by bankers, stockbrokers, and financial planners – other people wanting access to your retirement funds.

Self-Directed IRA investors have full options to choose their investments wisely. Many investors move money from a traditional IRA stock and bond account into a Self-Directed IRA so they can protect and grow their assets. You have the same investing options with a Self-Directed IRA as you do with a Solo 401k! 

If you think this is the right answer for you, please fill out the Self-Directed IRA application. You can open an IRA at any time. However, you must meet the IRA open deadline of Tax Day – (April 15, 2022) – if you want to make a prior-year IRA contribution.

Make Your Plan for 2021 and 2022 Taxes

People who are aggressive about minimizing taxes and maximizing retirement funding don’t tend to be procrastinators. The Solo 401k plan by Nabers Group is the most flexible and compliant plan available. You can set up your Solo 401k account today and contribute on your own schedule with no minimum contributions (contribution FAQs).

Setting up your Solo 401k and making contributions are two separate actions. You have until the due date of the tax return for your business to make contributions. If you file an extension for your tax return, you can contribute up to the extension date.

Opening your Solo 401k now enables you to still make 2021 contributions and begin funding it for 2022. You can choose to gradually reach the contribution limit over many months (but before the deadline). A lump-sum contribution is not required. Just as important, by opening the account now, you can rollover your existing retirement funds to take full control of your investments immediately.

Something you should know

A business owner who is also employed by a second company and participating in that company’s 401k plan should bear in mind that his limits on elective deferrals are by person, not by plan. He must consider the limit for all elective deferrals he makes as an employee of both companies during a year. However, the amount one company contributes to your retirement does NOT affect how much the other company can contribute. For this reason, many Solo 401k owners contribute the maximum allowed from their self-employed businesses.

Solo 401k Flexibility Before the 2021 Deadline 

You have complete control over your retirement account and what you choose to invest in. Additionally, there is tremendous flexibility with a Solo 401k. For instance, you also have the choice of making after-tax contributions using a Solo Roth 401k. You can even have multiple accounts that include both a tax-deferred Solo 401k and an after-tax Solo Roth 401k. You can also take a $50,000 loan from your Solo 401k just as you can from a traditional 401k.

Also, be aware that increasing or maximizing your 2021 Solo 401k contribution is likely to lower your state taxes.

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