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Solo 401(k) Providers and the Pros and Cons

Knowing what Solo 401(k) providers can offer will help you determine if it is the right kind of retirement investing for you.

Self-employed? Don’t have any full-time employees working for you? It might be time to look into Solo 401(k) providers to find out about this unique retirement plan designed specifically for self-employed individuals. Basically, the Solo 401(k) is designed for people who work for themselves and don’t have others working for them, not including business partners or a spouse that helps with some tasks

Before you look for a provider, however, it’s important to understand the advantages and disadvantages of these plans. One of the biggest concerns for self-employed individuals is the ability to save enough for retirement. Employed people often have more help and guidance in making the right moves for their future.

Even if there is not as much help for self-employed individuals, there are still plenty of options that they can work with. The Solo 401(k) is one of the best.


Discover the reasons people choose to work with Solo 401(k) providers

The Solo 401(k) works similarly to a traditional 401(k) with a few distinct differences. Besides the obvious fact that this is specifically for self-employed people, there is also the advantage of having the opportunity to choose the way your money is taxed.

You can opt for a traditional Solo 401(k) that offers tax deferral. This means your money won’t be taxed going into the account, and you will have more money in the account for growth. Alternatively, you can use a Roth Solo 401(k) where the funds deposited into the account get taxed immediately as regular income. The tax advantage of a Roth is on the withdrawal where no additional taxes come out of the growth you’ve had through your investment.

Above all else, one of the best reasons to work with a Solo 401(k) provider is the experience you get. Working with someone that knows what they’re doing can give you confidence and take a burden off your shoulders. Running a business already takes a lot of energy. Working to figure out your investments on top of that work may be too much. Having experience in your corner can give you a significant advantage without a huge time commitment.

Why people choose other options

An IRA and Roth IRA are both available to anybody with earned income. If you’re not looking to invest through retirement accounts beyond what these vehicles allow, a Solo 401(k) can be more than you need.

Having the freedom to decide how you are taxed is enormous. Many people think about how their money is growing, but neglect to think about the way they’re being taxed. Your taxation has many implications on the best and most efficient ways to withdraw and use your money. Still, other vehicles can provide you with this taxation flexibility.

A quality non-direct recognition life insurance policy with a strong company, for example, can be a great way to develop a tax-free asset over time. Still, each vehicle has its advantages and disadvantages, and others might work better for your situation.

Why are you exploring Solo 401(k) providers? What other options have you explored?


Nancy Zambell has spent 30 years educating and helping individual investors navigate the minefields of the financial industry. She has created and/or written numerous investment publications, including UnDiscovered Stocks, UnTapped Opportunities, and Nancy Zambell’s Buried Treasures under $10. Nancy has worked with for many years as an editor and interviewer for their on-site video studios.