Business owners and those with side businesses or income can establish a very lucrative retirement benefit, the solo 401k. The plan must be in place before Dec. 31 of this year in order to take advantage of it for 2003. Pay attention, as this is very good.
Because a 401k plan is also a profit sharing plan, there is an opportunity to make deposits of up to $40,000 per participant, more than is available with other retirement plan options.
If the plan is limited to "eligible solo plan participants", there is very little administration required. These eligible participants are those who earn income from the business. Here is where a terrific opportunity exists.
The 401k plans allow for the deferral of 100 percent of salary up to $12,000. So, if your business has family members being paid a salary, they can literally defer all of their salary. In addition, the employer can make an additional contribution.
Someone with a side business, earning $20,000 per year can make a deductible contribution of $17,000, 85 percent of earnings and owe tax on only $3,000! In addition, anyone over 50 years of age as of Jan. 1 can make additional contributions, on a "catch-up" basis for the next several years.
While defined benefit plans have reemerged as an option for those seeking high contribution levels, the solo 401k has several advantages. These include low administration costs, minimal reporting requirements, and most important, flexibility.
A defined benefit plan requires an annual contribution, while the solo 401k does not. So this plan combines high deductions and flexibility in a manner not available in any other plan.
Like other plans, the solo 401k is generally protected from creditor's claims. In addition, the plan can include a brokerage account enabling the participant maximum investment flexibility.
For additional information on the several solo 401k plans available, contact Associates in Financial Planning at 633 Skokie blvd., #480, Northbrook, IL 60062, e-mail aifp@aol.com.
Alan Nadolna is a consultant to financial service organizations and is a financial advisor to corporations and individuals. He is a member of a panel of financial experts preparing This Way to Wealth. Your questions are invited by writing to Nadolna at Associates in Financial Planning, 633 Skokie Blvd., Suite 480, Northbrook, IL 60062 or call 800/428-9786 or 847/509-5090.