A 401 (k) contribution is a savings account in the United States. that allows individuals to save for their retirement. Individuals can start to withdraw these funds after they reach 59-1/2 years of age. Restrictions may apply before that age. These types of plans were first widely adopted as savings retirement plans for workers in the U.S. at the beginning of 1980s. 401 (k) surfaced as a marginal to the traditional retirement pension that was paid by employers. Employer contributions to 401 (k) can vary, but overall the 401K was effective in shifting the burden for retirement accounts as well as savings to the workers themselves.
There are contribution limits on the total annual employee pre-tax salary deferred into the retirement plan. These limits known as the ‘402 g limits’, were $15,500 for the year 2008 and $16,500 for the years 2009-2011. The limit for future years may be indexed for inflation, increasing in increments of $500. Employees 50 years of age or older are now allowed additional pre-tax catch-up contributions at any time during the year, with contributions of up to $5,000 for the year 2008 and $5,500 for the years 2009-2011. Future contribution limits may also be adjusted for inflation in increments of $500. Employees can choose to contribute on a pre-tax basis with eligible plans.
In 2011 the total contributions for a Solo 401k limits are $49,000 or $54,500 for those over 50 years of age. Annual Solo 401k contribution consists of two parts, a profit sharing contribution and a salary deferral contribution. The total allowable contribution puts these two parts together to arrive at the maximum Solo 401K contribution limit. These contributions are flexible. The salary deferral and the profit sharing contributions are both discretionary and can be changed at any time based on the profitability of the business.
The Solo 401K rules can be different when dealing with couples. A business with a spouse on the payroll can also contribute to the Solo 401K plans. There would be only one Solo 401K for a business with two participants. As long as the business owner and the spouse have enough income from the business, both may be able to contribute $49,000 each or $54,500 each if both are over the age of 50 by the year 2011.
A self-directed IRA is an IRA which requires the account owner to be responsible for investment decisions as well as investments on behalf of the retirement plan. The custodian normally offers a variety of selections of standard asset types which the owner of the account can choose to invest in, including stocks, bonds and mutual funds.