According to many reports, most Americans are not adequately savings for their retirement. To this end, les than 50% of baby boomers are at risk of not having enough income in their retirement to pay for basic expenses, such as housing and health car expenses. Most reports show that within ten years of retirement, almost 50% of baby boomers are expected to run out of retirement income.
What these reports seem to suggest is that Americans need to make sure they are using the right retirement plan in order to maximize their retirement savings. Accordingly, for the self-employed or small business owner, the Solo 401K Plan offers the highest potential retirement savings along with a host of attractive options.
With a Solo 401K Plan, a self-employed individual can benefit from all the advantages of a conventional 401K plan while being exempt from most of the costly administrative requirements associated with traditional 401(k) Plans.
One of the main benefits of a Solo 401K Plan is the ability to make higher contributions. Under the majority of retirement plans that a self-employed or owner-only business adopts, the maximum annual contribution is generally $5,000 ($6,000 for those over the age of 50) for a conventional IRA and up to 25% of the business owner’s compensation. Business owners or self-employed individuals eligible for a Solo 401K Plan are able to take a tax deduction for an employee deferral contribution for 2011 of $16,500 ($22,000 for those over the age of 50) as well as a profit sharing contribution of up to 25% in the case of a corporation.
For example, if Joe who is 55 years old and the sole owner of a business conducted through a C Corporations earns $100,000 in 2011, he would be able to defer up to $47,000 by using a Solo 401K Plan ($22,000 employee deferral plus a profit sharing contribution of 25% of his compensation or $25,000). However, if Joe established a Traditional IRA he would only be able to defer $6,000. Whereas, if Joe established a SEP IRA he would be able to make a tax-deductible contribution of just $25,000 or 25% of his compensation. Thus, the Solo 401K Plan is clearly the most attractive retirement plan for someone looking to save as much as possible for their retirement while gaining the benefit of current tax deductions.
In a time where many Americans will not have sufficient funds to retire, it is vital for the self-employed or small business owner to empower themselves with the most attractive type of retirement plan – the Solo 401K Plan.