By Marty Pay
MBA, CLU, LUTC-F 

When being solo pays off

 

January 22, 2022

Marty Pay, MBA, CLU, LUTC-F.

Many small business owners have, at one time or another, for whatever reason, been faced with running the business alone or with the help of their spouse. Sometimes this is because of the nature of the business or just because the business is not at the point of being able to hire staff. One of the advantages of being in this situation is the Self-Employment or Individual 401(k) plan otherwise known as the Solo 401(k).

The Solo 401(k) has some great advantages as far as retirement options. In 2022 the owner can place as much as $61,000 in this retirement account. If he's one of us that have attained the ripe old age of 50 that number becomes $67,500. This can be a normal brokerage account which would be placed in stocks and mutual funds or a self-directed Solo 401(k) plan which has more options. In a self-directed Solo 401(k) plan, stocks and mutual funds aren't the only place to invest your money! You can include real estate, precious metals and do private loans or private business investments, all in this retirement account.


As with any tax-qualified plan, there are numerous benefits. Your investment is not taxed until you take it out, so you have the time value of money working in your favor on the entire amount of the investment since no taxes are due. This obviously increases your return on the investment dramatically. You'll have to wait until at least 59 ½ to have any distribution occur. And if you're retired when you do take the money, chances are you'll be in a lower tax bracket, again saving you a few dollars.

One of the other great aspects of this plan is who qualifies. You could be working full-time for an employer and have a part-time business on the side. The income from that part-time business could be income you might place in a Solo 401(k). Check with your bank or your financial advisor to find out more about this incredible opportunity.


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Marty Pay has been a local Farmers Agent for over 30 years. He is a certified financial planner and teaches finance at a local university. His office is at 212 W. F St., Tehachapi. (661) 822-3737.

 
 

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