If you didn’t know you can open a 401k without an employer you’re not alone! If you’re looking to save on taxes and invest with freedom – then you need to know about a Solo 401k.
This is a very versatile investment vehicle. It typically saves you more in taxes than a traditional 401k held through an employer. You do need some income through self-employment but it’s not necessary to be employed full time. The Solo 401k brings huge tax advantages to people working as sole proprietors, small business owners, independent contractors, and freelancers. You also have total flexibility in how your part-time and/or self-employed business is structured. It can be a sole proprietorship in your name, a limited liability company (LLC), a partner LLC, a C-Corp, or an S-Corp.
What you need to open a 401k without an employer might already be in place or you can be just starting today.
How to Start a 401k on Your Own
You have a right and a need to take control of your own retirement destination if you are a freelancer, independent contractor, are otherwise independently employed, or even if you have a side business and are still employed by someone else. Self-determination of your retirement comes with all the tax benefits associated with saving for your retirement.
Corporate work no longer offers job security. And certainly, the traditional corporate pension is not an option. You must take responsibility and control of your retirement planning. In 2016 a BNP Paribas Global Entrepreneur Report (a top-tier European and international banking establishment), found that “millennipreneurs” have started an average of 7.7 businesses, and collectively hold $5.6 billion in investable wealth. The prospering self-employed must have a tax-shelter that preserves and grows this into a wealthy retirement.
Being able to open a this account without an employer fits the needs of independent-minded people like a glove. Full control of all your retirement funds in a Solo 401k includes rolling over orphaned retirement accounts from earlier employers, accounts from previous businesses you have owned, and continuing to contribute for tax advantages that all flow into in a single consolidated account with the highest number of investment options available.
There are a few easy steps that must be taken to open an account so that it complies with the Internal Revenue Service (IRS). With Nabers Group, your Solo 401k includes Unlimited® sub-accounts for your spouse — both Tax-Deferred and Roth. You can borrow up to $50,000 from your Solo 401k funds tax-free for any reason. Your spouse, if named as a participant, can also have unlimited rollovers that become self-directed into alternative investments. Every Solo 401k includes a Roth Solo 401k subaccount for you and one for your spouse, even if you make too much money to be allowed to contribute to a Roth IRA.
Who Qualifies to Open a 401k Without an Employer?
There are only two requirements to open a Solo 401k.
- You must own a business (spouses running a business together qualify).
- Your business must have zero employees (employees defined as those who work for you more than 1000 hours per year and receive W-2 wages).
Many sole proprietors, small business owners without employees (except for a spouse), independent contractors, and freelancers typically fit this description. The business can be structured as a Limited Liability Company (LLC), an LLC partnership, a C-Corp, or an S-Corp. There are really no restrictions other than the business has no full-time employees except for the owner and spouse. Importantly, the business can hire outside contractors as long as they are not W-2 employees. You can also have part-time employees as long as they are less than 1,000 hours a year.
Here is a quick test to see if you already qualify.
If you already qualify, that’s excellent! Click here to get started with your very own Solo 401k plan.
You can have a Solo 401k if you’re moonlighting or making money from a hobby. If you have a 401k at more than one job, the total employee contribution limits must be within the maximum for the year, but the employer contribution is not limited. Make yourself one of the savvy people with two retirement savings plans.
If you need more information, read on because the ability to open a 401k without an employer
is a core issue affecting multiple facets of your financial future and freedom.
What Are the Benefits When You Open a 401k Without an Employer?
Not owning a small business today is a big mistake. Owning a small business allows you to open a 401k without an employer. A solo 401k allows you to fully control all aspects of your retirement account. This begins with the amount that is contributed to your account. With a Solo 401k, you decide how much to contribute as your own employee, and you decide how much your company contributes as profit sharing.
A traditional employer (corporation) 401k controls how much you can contribute as an employee and limits the amount the company contributes in matching funds (profit sharing). Those limitations are costing you tax money today and limiting how much you will grow your retirement funds for your future.
When you open a 401k without an employer, you can maximize your retirement contributions as well as take business deductions. Taking business deductions increases the profits that can be added to your retirement contributions. A spouse that is part of the Solo 401k can double the contributions. A traditional employer 401k is dramatically more limiting in all these aspects of your retirement account.
When you open a 401k without an employer, you gain much more flexibility over how the account is managed. You decide how to deal with your tax obligation. You can maximize or minimize how much is contributed each year. You decide how much is contributed as an employee and how much your business contributes as your employer.
A very big deal is the flexibility that you gain to invest in what you want to invest in. A traditional employer (corporate) 401k dictates that you invest in what they select on Wall Street. Wall Street Greed can separate you from your retirement money.
A Solo 401k is for everyone who wants full control of his or her retirement funds. It’s for people who understand that no one else is more concerned about their financial future than they are themselves. When you open a 401k without an employer, you open the door to alternative investments. Investments that may or may not be on Wall Street. Investments that you understand. Investments that you have control over. You can invest in real estate foreclosures or rentals. You can invest in cryptocurrency. You can invest in a startup business. With the boom and bust cycles of the stock market, many investors find they can get better returns by investing in alternative assets. Stock market investing has a compound annual growth rate of about 6.7%. Meanwhile, some real estate investors are averaging 12-14% per year with their rental properties. Crypto investments have done incredible things. This is why it’s easy to understand why investors are drawn toward alternative assets. You are not exposed to market downturns as you would be in an all stock/bond portfolio.
The dollars are huge when you take full advantage of contributions to a Solo 401k plan. In 2022, employees of a business with a Solo 401k can contribute up to $20,500 per year. This is a $1,000 increase over 2021. But that is only part of the contribution story. There is also the catch-up contribution of $6,500. This is for people that are at least 50 years old. And… when you can include the employer (profit sharing) portion, the total contribution limit rises to $61,000 or $67,500 if age 50 or over in 2022. Now… double that for a spouse for a whopping $122,000 or $135,000 if both are at least 50 years old.
When you open a 401k without an employer, the large contributions allow you to defer more income from taxation. It also reduces state income tax by lowering your adjusted gross income (AGI). This is great for Americans facing potentially higher taxes from President Biden’s Build Back Better plan.
The benefits keep adding up. Your Solo 401k allows you to take up to $50,000 in loans from your account before you retire. This isn’t possible with most other retirement plans such as an IRA. Also, your Solo 401k is straightforward in terms of paperwork because it is designed for one-person businesses, not corporations.
Better yet, these contributions can be made as Tax-Deferred, Roth Tax-Free, or a combination of both.
Can I Open a Roth Solo 401k on My Own?
A Roth Solo 401k provides the self-employed business owner with a new twist on personal taxes, a retirement boost, and business tax breaks. Your Roth account is the same as a Solo 401k when it comes to business tax breaks. The profound difference is what the twist on personal taxes can do to boost your retirement income.
These plans have only been available since 2006, but they are gaining in popularity as a way to establish a retirement income that is free from tax liability. Roth Solo 401k accounts are increasingly popular with younger participants who have many years remaining to grow their retirement accounts. These are also favored by high-income earners looking to shelter retirement income from taxes.
The Roth Solo 401k involves already-taxed money that becomes tax-free withdrawals. Yes, you pay taxes upfront, but withdrawals are tax-free in retirement. That means if you grow your Roth account by 2X, 5X, 25X, or even 100X its original value, the entire amount remains tax-free when withdrawn at retirement.
If you do know about Roth accounts, it might be the Roth IRA. Many people are unaware that there are income limits associated with Roth IRA accounts. The Roth Solo 401k has no income limits for the employee contribution. This allows high-income earners to qualify for much larger savings in a Roth Solo 401k profit-sharing plan.
A Roth Solo 401k is included in your Solo 401k by Nabers Group. Nabers Group allows you to take the maximum employee salary deferral contribution amount as a Roth contribution. But the amount you contribute is your choice. The Solo 401k by Nabers Group also allows you to convert a portion or even all of your Solo 401k funds to Roth.
How Much Does It Cost to Setup a Solo 401k?
Nabers Group offers fast, easy and compliant Solo 401k setup which includes:
- IRS Approved 401(k) Documents
- IRS Opinion Letter
- Line of Credit up to $50,000
- Unlimited Free Rollovers
- No Transaction Fees
- Bank Account w/ Checkbook Access
- Brokerage Account Access
- Form 5500-EZ Preparation
- Expert Ongoing Customer Support
- One-Click Annual IRS Maintenance
- Download Documents In 3 Hours
Setup Your Solo 401k Today
A Solo 401k plan by Nabers Group does not need a third-party administrator. You take full control of your financial future. Start where you are. Use what you have. Invest in what you want. We help get your retirement funds into your control — where they belong!