Waco Benefits
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Self Employed Retirement Accounts
One of the nice perks of being self-employed or a business owner is that you don't HAVE to retire. You're a doer. You like to make decisions and see results. But maybe someday -- perhaps when you're 65, 75 or older - you just might WANT the option to trade the fun and frustration of work for golf, gardening, vacationing with the grandkids or sitting back and relaxing with family and friends. Just as important, you also want to have all your ducks in a row, so to speak, when it comes to making sure your loved ones are well provided for in the future.

Neither of these goals just happens. They are the result of decisions you make today. That means retirement planning and estate planning – mapping out a strategy to create options for you and for your family. Fortunately, there are more retirement and estate planning choices available today than ever before those who are self-employed. Our company is with you every step of the way as you begin the planning process. The approach we take with clients starts by understanding your unique needs. Whether your business is a sole-proprietorship, C corporation, S corporation, partnership, or LLC, there are quite a few retirement plan options.

SOLO 401(k)

The term Solo 401k is commonly used to refer to the Individual 401k . Also known as a Self Employed 401k, Individual(k), Personal 401k, Uni-k and Single k this new self employed retirement plan is expected to revolutionize the way successful self employed business owners save for their retirement.
The Solo 401k takes advantage of the existing laws found under section 401(k) of the Internal Revenue Code as well as the new laws created by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) that went into effect on January 1, 2002. The Solo 401k is an under publicized gem in the tax law with a number of interesting features that make the Solo 401k unique relative to other popular self employed retirement plans like a Keogh or SEP IRA.

Solo 401k Eligibility
The Solo 401k is available to self-employed individuals and business owners with no full time W-2 employees other than themselves or a spouse. Businesses employing independent contractors (1099 employees) would not disqualify you from a Solo 401k. Sole proprietorships, partnerships, LLCs and corporations (including both subchapter S and C corporations) would qualify.
A business that employs part-time employees W-2 may be able to exclude them from plan participation. Generally, under federal law you are permitted to exclude the following types of employees:

  • Employees under age 21.
  • Employees with less than one year of service.
  • W-2 employees who work less than 1000 hours per year
  • Certain union employees
  • Certain nonresident alien employees.

Solo 401k Contribution Limits
In 2008 the maximum Solo 401k contribution limit is $46,000 or $51,000 if age 50+. Given sufficient income, a husband and wife working for the same business may contribute up to $92,000 combined or $102,000 if age 50+. Because of the way the contribution is calculated a larger contribution usually can be made into a Solo 401k than to a Keogh or SEP IRA at the same income level. Therefore the Solo 401k is usually the best option for maximizing retirement contributions and valuable tax deductions while reducing income taxes.

Solo 401k Loan
Another important distinction between the Solo 401k versus other self employed retirement plans is the ability to receive a Solo 401k loan. Loans are permitted up to 1/2 of the total value of the Solo 401k up to a maximum of $50,000. Solo 401k loans generally have a 5 year term. Principal and interest is repaid back to yourself into your Solo 401k. A Solo 401k loan can be provided tax free, penalty free and without credit checks or income qualifications and the money can be used for any purpose. A Solo 401k loan is a key benefit and may be considered a valuable feature for many self employed business owners.
A Solo 401k may be well suited for the self employed business owner who would like to maximize their retirement contributions or who would like to borrow from their retirement plan using their 401k balance as collateral via a tax free Solo 401k loan.

SEP IRA

A SEP-IRA is a retirement plan that is available to self-employed individuals and small businesses. When a SEP-IRA is set up, the employer must execute a formal written agreement to provide benefits to all eligible employees. Each eligible employee must receive information about the SEP-IRA and the SEP-IRA must be set up by or for each eligible employee. A SEP-IRA is easy to set up and operate and offers a quite lucrative way to save for retirement. A SEP-IRA is owned and controlled by the employee and the business owner makes contributions to the financial institution where the SEP-IRA is maintained. A SEP-IRA can be set up as late as the due date of your income tax return for that year.

SIMPLE IRA

A SIMPLE IRA is an employer sponsored plan where plan contributions are made to a participating employee's IRA. Under a SIMPLE IRA plan, a SIMPLE IRA must be set up for each eligible employee. IRS Form 5304-SIMPLE or 5305-SIMPLE is used to set up a SIMPLE IRA. The form you use is dependent upon whether you select the financial institution or your employees make the selection. The tax-deferred contributions are higher than a traditional or Roth IRA. SIMPLE IRAs are usually found in companies with less than 100 employees who want to provide an alternative to a qualified profit sharing plan. A SIMPLE IRA can be typically set up effective on any date from January 1 through October 1 of a given year. A SIMPLE 401k plan can also be set up in a similar manner as the SIMPLE IRA, however, the employer must meet certain conditions if a SIMPLE 401k plan is to be set up.