If you ask people with experience with SEP IRA, they will also tell you that it’s good when you earn little. Otherwise, a solo 401k is a better self-employed retirement saving option. It offers more protection for your tax-sheltered money. What do you think about it? According to financial experts, it’s best to consider one’s situation before deciding anything. Suppose your business can make USD $100k this year, and your spouse also works in it. You and your partner can contribute USD $22,500 each to your 401k account. Plus, you can also put money aside as an employer. With savings opportunities and tax benefits, a solo 401(k) plan looks much more efficient.
How to select a solo 401(k)?
“While shopping for this retirement plan, you must focus on the features and nuances. Free providers usually offer generic options called prototype plans. On the other hand, third parties provide customizations, known as non-prototype plans. For an idea of the non-prototype option, you can look at solo401k.com. But before that, you must know what you want in your solo 401(k). Some aspects worth exploring include options for traditional and Roth contributions, Roth IRA, mega backdoor Roth IRA, loans, investment types (cryptocurrency, startups, real estate, etc.), rollovers, maintenance, and investment costs. Once you ponder these features and understand their utility, choosing the perfect provider for your needs will become easy.”
Prototype vs. non-prototype solo 401(k) plan providers
A prototype provider usually offers free plans with limited flexibility. You may not expect a mega backdoor Roth or Roth contributions. If your account allows mega backdoor Roth, you can save more after-tax dollars than a simple Roth IRA. You add funds to the Solo 401k plan and convert them into Roth funds to move them into a Roth IRA. You can withdraw the sum without paying any penalty. Since many prototype providers lack these features, investors prefer non-prototype options.
Choosing a non-prototype provider has its benefits. You can pick your brokerage; invest in multiple assets like crypto, tax liens, promissory notes, real estate, precious metals, etc. You can also control your checkbook without any external interference. It allows you to move your money from one asset to another at your will. You can align your investments more with your retirement goals. All these things can be out of the question with prototype providers.
If you run a side business or small company without full-time employees, you must choose your plan option based on the benefits. Some people need Roth so that they can leverage tax diversification during retirement. They want to save pre-tax money and post-tax money. Others look for diverse investment choices at an affordable cost. If you wish to have all of them, choose a provider that covers a wide range. At the same time, monitor your pre-tax and post-tax money movement to know the actual status. Of course, you must pick a service provider that offers excellent customer service and full support with documentation. Most of your stress will vanish, and you can focus more on your transactions. It’s better to read all the terms and conditions well.