Let’s cover how you can qualify for a Solo 401k plan. Setting up a self-directed retirement plan is a powerful way to plan for your financial future. With a self-directed Solo 401k plan, you capture all the benefits of a Self-directed IRA. However, the Solo 401k has even more advantages than an IRA to supercharge your financial future.
The Solo 401k has higher contribution limits than an IRA. There are less administrative hurdles with the Solo 401k. Finally, prohibited transaction forgiveness is more lenient with a Solo 401k plan.
So now that you know the benefits of a Solo 401k plan, how can you get one for yourself?
Solo 401k Plan Qualification
Plan qualification includes two elements:
- You must own a business
- Your business must have zero employees (employees defined as those who work for you more than 1000 hours per year and receive W2 wages)
In today’s modern age, almost anyone can qualify for their own small business. And yes, you can have your own small business on the side and open a Solo 401k while still keeping your “day job” and corporate 401k plan.
Here are some ideas on how you can get started with your own small business to qualify for the Solo 401k.
1. Drive for a Ride-Share Service
Uber and Lyft are changing the game when it comes to transportation. Not only is the service incredibly valuable to passengers, but drivers are making extra money and doing it on their own schedule.
A recent survey showed the #1 reason people love driving for ride-share services like Uber and Lyft is because they can make their own schedule. Even if you work a “real job”, you can drive for a ride-share service on evenings, weekends, or holidays. It’s a great way to make some extra cash. Further, you’ll be paid 1099-MISC income, which qualifies you for the Solo 401k.
2. Walk Dogs for Extra Cash
Turn your love for animals into a stream of income! Services like WagWalking.com and Rover.com will match you with pets and pet owners. Each company claims you can earn an extra $1,000 per month working for their service. What would an extra $12,000 per year do for you financially? Remember, the Solo 401k allows you to contribute up to 100% of your net compensation tax-deductible. That’s at least $12k/year you can put toward your retirement savings.
3. Leverage Special Skills
If you have a special skill, such as speaking a second language, knowing how to write computer code, plan events and parties, or are a graphic designer – there are tons of ways to get freelance jobs online. Sites like Guru, TaskRabbit, and Upwork will connect you with buyers looking for your skill set. This type of online job flow is gaining more traction than ever.
Freelance jobs can be done on a flexible schedule and you can usually work from home. The market for freelance work keeps growing. Guru states they have paid over $250MM to freelancers to complete more than 1MM jobs. According to a survey commissioned by Upwork and Freelancers Union, the majority of the US workforce will do some sort of freelance work by 2027. It’s projected at least 50% of the US workforce will do some freelance work by 2020.
4.Turn Your House Into Cash Flow
Are you looking to dip your toe into real estate (or maybe jump in headfirst)? Start by renting out a room in your house on Airbnb. It’s a great way to earn some extra cash flow and a short term rental business may qualify as earned income. As we travel more, home-sharing is a more attractive option. The prices are more competitive than a hotel, and you get a local guide to share the experience with. If you own rental properties personally, doing some short-term rentals on Airbnb may be a great way to generate some income and qualify for the Solo 401k plan.
5. Become a Consultant
The consulting field is growing by leaps and bounds. As more businesses become “niche-fied”, they look to consultants for help solving problems. Sam Ovens of Consulting.com specializes in teaching beginner entrepreneurs how to launch a successful consulting business. Sam teaches there are three steps to building a successful consulting business:
A. How to pick your niche and craft an offer that provides value to people
B. How to cultivate the mindset of a successful business owner
C. Learn how to convert prospects to clients in one phone call
In the last five years, Sam has made 21 millionaires, helped 451 people quit their day job, and taught his consulting program to over 3,000 people.
Make it Stick
The Solo 401k is a business-owner 401k plan. While starting a business is easy (and fun!), it’s important to stick with it. The IRS does not have any threshold of revenue needed to qualify for the Solo 401k. In other words, you can qualify for the Solo 401k plan just by starting your business, even if you haven’t earned any money yet.
However, it’s important your business efforts be legitimate. Your small business should be activity you plan to do on a long-term basis. As long as you are actively running your business with an intent to profit, you can keep your Solo 401k plan. But, your business activity must be happening in order to keep your qualification for the Solo 401k plan.
Are you thinking of starting your own small business? Let us know in the comments below!
The deadline to open your Solo 401k in 2018 is approaching. Contact our team with any questions or click here to setup your own Solo 401k today!