Self-Employed Retirement Plans

Many people associate the term “401(k) account” with employer-sponsored plans.  However, the IRS has a specific retirement plan dedicated to small businesses and independent contractors.  This retirement plan, known as a Solo 401(k), is not as common as other qualified plans.

Solo 401(k) is designed for self-employed small business owners and independent contractors.  In order to qualify for this plan, the business or self-employed activity cannot have any other full-time employee except for the owner and his or her spouse. 

Unlike traditional qualified plans, investors can choose to invest their savings in almost any available asset, including real estate, private business and metals.  Thus, a solo 401(k) offers flexibility in investment options.

All 401(k) accounts require a designated trustee who manages the investment assets of the account.  With a Solo 401(k), you can be the trustee of your own account.  As the account owner, you have the ability to control your savings and direct investments as you see fit. 

Since you are the employer in the case of a Solo 401(k), you can contribute a profit sharing portion, which can bring the total annual contribution to as much as $52,000 in 2014.  This is similar to employer matching, and with the high contribution limit, you can take full advantage of the tax benefits for retirement plans. 

See Dmitriy Fomichenko, Solo 401(k)—Retirement Plans for the Self-Employed, Nerd Wallet, Oct. 2, 2014.