Is the year-end rush on for the self-employed to start a solo 401k plan?
One solo 401k plan provider thinks so. Adam Bergman, tax attorney and president of New York-based IRA Financial, says he expects to see a strong demand from the self-employed and small business owners through the fourth quarter of 2019 looking to adopt a self-directed solo 401k plan for the 2019 taxable year.
A solo 401k plan, also known as an individual 401k, offers plan participants the ability to make annual contributions of up to $56,000 if under 50, and $62,000 for individuals age 50 and older.
Additionally, the plan offers a solo 401k loan feature of up to $50,000 tax- and penalty-free. Solo 401k plans with “checkbook control” allow participants to make virtually any type of investment without requiring the consent of a custodian.
Bergman says solo 401k plans are popular among the self-employed because of their flexibility and lack of burdensome annual administrative requirements. He notes that plan participants have no annual filing requirements unless the fair market value of the solo 401k plan assets exceed $250,000.
Individuals who are eligible to establish a solo 401k plan can take advantage of a number of tax, retirement and investment advantages, including the ability to defer up to $62,000 annually and gain greater control over their retirement plan investment options.
To become eligible, one must have a business with no full-time employees, except themselves, a spouse and/or business partner(s), or generate some form of self-employment income, such as freelance work. This can be in conjunction with a traditional 9-to-5 job.
With a solo 401k plan’s “robust” features and the rise of the gig economy (a faction of workers who freelance or have short-term contracts), Bergman said he is confident that more Americans will see the appeal of saving for retirement with a solo 401k plan.
An added attraction to the plan is that contribution limits are increasing, as the Treasury Department recently announced the new contribution limits for 2020. Solo 401k plan participants under age 50 will be able to contribute $57,000 in 2020, while participants age 50 and over have a $6,500 catch-up which can increase their contribution to $63,500.
The figures, which were adjusted to take inflation into account, will allow participants to save significantly more in 2020 than in 2019.