IRA Financial’s Adam Bergman discusses how even Santa Claus can open a Solo 401(k) plan. Since playing Santa will earn you self-employment income, you can contribute to a Solo 401(k).
In his latest podcast. Mr. Bergman discusses the Solo 401(k) for Santa. Yes, even Santa Claus can open a Solo 401(k). This is true for anyone who has self-employed income. So, if you work as Santa during the holiday season, you can take advantage of the best retirement plan out there. Even more, if you earn money for yourself as an elf, caroler, snow shoveler, or any other seasonal self-employment, you can stash more for your retirement.
The Benefits of the Solo 401(k)
So, why is the Solo 401(k) for Santa the best retirement option? Simply, because of all the benefits the plan offers. First, it’s the ideal solution for the self-employed. Yes, you may contribute to an IRA, but a Solo 401(k) offers much more potential. It has higher contribution limits. For 2019, you may contribute up to $56,000, or $62,000 if you are age 50 or older. For 2020, that limit increases to $57,000/$63,000 respectively.
Next, you may choose to borrow money for any reason. You are allowed to take a loan of up to $50,000, or 50% of your account balance, whichever is less. An IRA does not have a loan option. Further, you may choose to contribute pre-tax money (traditional) or after-tax money (Roth option). Traditional Solo 401(k) contributions are tax-deductible, meaning you don’t pay taxes on that money until retirement. Roth Solo 401(k) contributions come from after-tax money. While there is no tax deduction, all qualified distributions are tax free.
Last and probably most importantly, are the investment options of the Solo 401(k). No longer are you tied to the traditional investments your local bank or online financial provider offers. When you work with the right provider, such as IRA Financial, your Solo 401(k) investment options are almost limitless. You can invest in traditional assets, such as stocks and mutual funds, plus alternatives, including real estate, precious metals and tax liens.
Related: Tax Free vs. Tax Deferred
Why Can Santa Have a Solo 401(k)?
There are two important factors to having a Solo 401(k). First, is the presence of self-employment activity. Generally, those who work as Santa Claus do it as a side job. They don’t work for an employer, but instead are contracted by one company or another. Some Santas and other seasonal characters are hired by families. So long as you are not an employee of the entity hiring you, you will have self-employment income.
The other caveat is the lack of full-time employees. Essentially, this is someone who works for you at least 1,000 hours during the year. If you work as a seasonal Santa and hire individuals to act as elves, you should be able to fund a Solo 401(k). However, once these employees reach 1,000 hours annually, they must be included in your 401(k) plan. Thus, a Solo 401(k) is no longer permitted.
During this time of year, it’s important that you take care of yourself (in addition to others). Remembering your retirement planning is an important consideration. If you give back by playing Santa Claus, or doing any type of self-employed work, make sure you check out the Solo 401(k) plan.
Wishing everyone a very Merry Christmas and joyful holiday season. Be sure to check out all of our podcasts on our SoundCloud page!