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Owner-Operator Truckers and Retirement

3 Minute Read

If you’re a trucker, there’s a good chance you’re an independent contractor/owner-operator.What do you do for retirement savings? Truckers and retirement can go hand-in-hand when you plan for the future.

Key Points
  • As an owner operator, you look for hauls for yourself.
  • Neither independent contractors nor owner-operators work exclusively for one trucking company
  • Retirement plans present different challenges

Independent Contractors & Owner-Operators

Independent contractors and owner-operators are both truckers, and depending where you’re looking for information, you’ll see the terms used interchangeably sometimes. We’ll be using “Owner-Operator” and offering some information about truckers and retirement.

As an Owner-Operator, you’re fully self-employed, and receive a 1099 for tax-filing purposes. You operate your own truck and trailer and are responsible for finding your own routes. You’re also responsible for your own retirement account. As an Owner-Operator, you can qualify to open up a Solo 401(k), provided you do not have employees. In fact, there are only two requirements to start your own Solo 401(k) –  first, the presence of self-employment activity and second, the absence of full-time employees.

Truckers and Solo 401(k)

A Solo 401(k) is a 401(k) qualified retirement plan that was designed for self-employed individuals and small business owners with no full-time employees, excluding a business partner and/or spouse. Much like the traditional 401(k), this unique plan encourages individuals to save for retirement in a tax-advantaged environment. When participants contribute funds into the Solo 401(k), taxes on the funds will be deferred until the participant takes a qualified distribution.

Making regular payments into your Solo 401(k) account makes the most sense regarding truckers and retirement. In the same way you keep yourself working, you can keep yourself saving and working toward your retirement goals.

Why go Solo?

If you are a self-employed trucker, you need to be proactive about your retirement planning. You essentially have two options: the Solo 401(k) and IRA. While an IRA is a great option (especially if you self-direct it) the Solo 401(k) is the best plan for the self-employed.

The main reason is the contribution limits. For 2020, you can contribute up to $57,000 to a Solo 401(k), more than nine times the IRA limit of $6,000. Plus, if you are at least age 50, you may contribute another $6,500 to the 401(k), but only $1,000 more to an IRA.

Two more benefits are the loan option and the UBTI exception. You can borrow up to $50,000 from your 401(k) plan. However, you cannot borrow from you IRA. You must take a taxable distribution, which cannot be paid back to the plan. If you plan to invest in real estate, there’s an exception for 401(k) plans concerning unrelated business taxable income. This tax is triggered for various reasons. If you use nonrecourse financing in an IRA to purchase a property, you will owe the tax. When using a Solo 401(k), you are not subject to UBTI.

Truckers and the ROBS Solution

According to the Owner-Operator and Independent Driver Association (OOIDA) the average owner-operator has been in the trucking industry for 26 years and is about 55 years old. Mostly male, he may be interested in the ROBS Solution which is an IRS-approved structure which allows you to invest funds from your retirement account into a new business/franchise. 

This means that the retirement money you’ve been saving so assiduously may be able to be used for purchasing a truck, a trailer, or other considerations. With ROBS financing, you can start your business out debt free, using your own funding, which will put you fully in control of your investment.

Using your own money, you aren’t indebted to anyone, don’t need perfect credit, and are using funds already in your possession. You don’t need to seek out referrals from anyone, and don’t need to prove your expertise before you’ve started your company.

The ROBS retirement arrangement typically involves rolling over a prior IRA or 401(k) plan account into a new 401(k) plan. A start-up C Corporation business sponsors the plan. Then you invest the rollover 401(k) Plan funds in the stock of the new C Corporation. The funds are deposited in the C Corporation bank account and are available for use for business purposes.

Considerations for Truckers And Retirement

Planning for retirement can be a challenge for everyone. For Owner-Operators and anyone who owns their own business, it may be difficult for them to start out on their own. IRA Financial Group can help with setting up the ROBS Solution using funds from an existing 401(k) or help to establish a Solo 401(k) to get retirement on the right track.

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