Individual 401K plans are also known as self directed IRA plans, which are one of the newest forms of retirement plans for self-employed Individuals. The plans provide small business owners and spouses the opportunity to take advantage of self-employment benefits by establishing a solo 401K plan for retirement. They provide less expensive methods for financing business loans and provide a wider range of investment opportunities.
Small businesses have the ability to use this self directed IRA plan to maximize retirement contributions and tax deductions. In 2011, contribution limits are $49,000 a year for those under the age of 50 and %54,500 for those 50 years old and older. Self directed IRA plans provide significant tax savings for self-employed business owners and spouses with an opportunity to double the allowed contributions.
There are rules to taking advantage of this substantial solo 401K tax deduction for retirement that allows the owner and spouse to make both employer and employee contributions. As a self-employed owner, the combination of business income and employee earnings, which is taxable income, needs to be enough to make these contribution limits.
The benefit too using a self directed Roth IRA as a business tool is that it allows the owner to borrow against the self directed Roth IRA value tax free. The owner can borrow up to 50% of the total amount with a maximum limit of $50,000 completely tax free. Payments need to be made during a 5-year maximum allowed repayment term to avoid penalties.
If the loan is used to purchase a primary resident, the loan terms can be extended up to 15 years. Owners need to review the loan amortization schedules, and failure to repay will result in IRS taxes and penalties. Payments arrangements are flexible: They can be made monthly or quarterly and include principal and interest, which is much lower in comparison to borrowing the funds from a bank or lending institution.