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Guest Article Save On Taxes This Year With a Solo 401k for Small BusinessesBy Dmitriy Fomichenko, President and Founder of Sense Financial Tax planning is an important process for most of us, but even more so for small business owners and self-employed professionals. Proper planning can help business owners lower their tax bills by thousands of dollars for the year. One of the popular strategies for small business owners is the Solo 401k plan. Created for businesses without full time employees, the Solo 401k plan gives the plan owner a lot of control and flexibility. Not limited to stocks and bonds, a Solo 401k plan owner is allowed to invest in alternative options, including real estate, precious metals, private businesses and more. But above all, the Solo 401k plan can offer many tax benefits that small business owners can take advantage of. Maximize Contribution Allowance One of the biggest benefits that a Solo 401k plan offers is the generous contribution limit. Compared to a traditional IRA plan, the Solo 401k allows a plan participant to put away almost 10 times more each year. In 2015, a Solo 401k plan owner can contribute up to $18,000 in salary deferral, plus a $6,000 in catch up contribution if he or she is over 50 years old. The total contribution limit, including profit sharing contribution, is $53,000 or $59,000 for those over 50 years old. If a plan participant contributes up to the maximum limit, his taxable income will be reduced by over $50,000 for the year. Understand the Deadlines Many people assume that the deadline to make contribution is at the end of the year. However, December 31 is only the deadline to set up a Solo 401k in order to qualify for contributions for that year. Once the plan is set up, plan owners can actually make contributions up until the tax-filing deadline of the following year. Understand the deadline will help small business owners plan ahead and maximize their contribution benefits. Consider Roth Options The traditional Solo 401k offers tax-deferral benefits, which means taxes are taken out at the time of withdrawal instead of upfront. This allows the funds to grow faster without interruption. The tax-deferral benefit is not the only option, however. Many investors are now considering the option of a Roth Solo 401k. With this option, contributions are after-tax. However, there will be no tax ever after that. Which means all the gains from investing the contributed amount will be tax-free. The choice between a traditional and a Roth account can depend on a person's tax situation. Many plan owners however, take the opportunity to create a mix of pre-tax and after-tax savings. This will give them the flexibility to choose during retirement whether to withdraw from the tax-free account or save that for another year. Dmitriy Fomichenko is President and Founder of Sense Financial, a leading provider of retirement accounts with "Checkbook Control": the Solo 401k and the Checkbook IRA. To learn more about the Solo 401k plan, please visit sensefinancial.com or email us at info@sensefinancial.com. More information on Solo 401k plans can be found by clicking here. ### 401khelpcenter.com is not affiliated with the author of this article nor responsible for its content. The opinions expressed here are those of the author and do not necessarily reflect the positions of 401khelpcenter.com. This article is for informational and educational purposes only and doesn't constitute legal, tax or investment advise. | ||||
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