Two Minute Money: Work solo? A Solo 401(k) might be for you

Turner Cowles
Turner Cowles

If you’re self-employed, you might think you don’t have any 401k options, but there’s good news: You do!

It’s called the Solo-401(k), and it essentially lets you stow away money for retirement by yourself instead of relying on a company-sponsored account.

A Solo-401k is just one of several retirement options available for sole proprietors and freelancers who don’t have any full-time employees.

If you’re married, your spouse can also contribute to it, which means the two of you can put away a lot of dough.

Don’t worry if you’re self-employed: You’ve got retirement options.

If you’re self-employed, that means you’re the boss—and as the boss you can match your own contributions. You can also set aside an extra 20% after you account for self-employment taxes—up to $54,000 for 2017.

Something called a SEP IRA may also be an option, but if you’re a high earner with steady income, the Solo-401k wins out. A Solo-401k may allow you to put away more cash including a catch-up for savers over 50. And Solo-401ks offer a Roth option as well, which allows you to invest after-tax dollars in your retirement account.

There are some drawbacks to the Solo-401k. For example, it’s limited by the type of income you receive. If you’re a freelancer, you need to be an independent contractor to qualify. This means that your employer is not taking taxes out of your paycheck.

If your income is Schedule C, K-1 and 1099 income, then you’re probably eligible for a Solo-401k. If none of those sound familiar, you could be a W-2 or common-law employee and ineligible.

Solo-401ks require more paperwork than a SEP IRA, including Form 5500 if your account is worth more than $250,000.

Bottom line: if your income is steady and you work for yourself, a Solo-401k could be a great option to keep you living large in retirement.

One in three Americans has no retirement savings. Make sure that doesn’t include you.

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