Self Employed 401k
HOW SELF EMPLOYED 401K PROGRAMS WORK
The term self employed 401k is a term used to describe the type of retirement account that is similar to a 401k but does not require the employer sponsoring of the plan. This type of plan is commonly called an Individual 401k. In 2002, the Economic Growth and Tax Relief Reconciliation Act of 2001 was put into place. This made the existing self employed plan more beneficial to the user, and changed its name to the individual 401k instead.
There are two particular beneficial aspects of this plan. First, there is the potential for greater retirement contributions at the same income level. This helps to give the investor a higher deductible and provides for better retirement contributions. The second benefit is that the user is able to get a tax free self employed loan by using the balance of the 401k as collateral for the loan they need.
Like most types of retirement plans, this type also has contribution limits. These can change, but to use 2009 as an example, an individual over 50 can contribute as much as $54,500 whereas others can contribute as much as $49,000. This gives the user a higher level of contribution allowance when compared to other types of retirement plans for the self employed, including the Keogh and the SEP IRA.
Prior to selecting any type of retirement plan, it is critical that the individual consider all options. This newer retirement option has opened the door for higher contributions and deductibles, which means people can plan better for their future. The self employed 401k is an ideal choice in many of these situations.
