Your Solo 401k Options While currently Employed

If you are currently employed then you are more than likely paying 401k contributions already. A 401k plan is already a known investment opportunity for employees, but what is not as well-known is the fact that an employed individual can avail several 401k plans.

Today, being gainfully employed is not enough to address all the expenses that a family may require. Thus, many resort to other means of earning opportunities such as running and operating a side business while still being a full time employee. If for instance this is your current situation, you have the opportunity to adopt a Solo 401k plan for your personal business venture while at the same time maintain your 401k contributions relating to your full-time job. This method will allow you to maximize the allowable total 401k contributions.

If you want to obtain a 401k plan for your independent venture you need to make sure that you pass the required conditions first. There are two eligibility requisites namely:

  • The presence of a self-employment activity
  • Absence of full-time staff

This means that you generate income from an independent earning opportunity but you don't employ full time staff. Of course, part-time personnel can be employed in order to help you and your spouse in handling the details of the side business. It should be noted that a part-time employee should only work for 1000 hours or less annually. Whether your side business is a Sole Proprietorship, a Partnership, an LLC, or a Corporation, you can still open a Solo 401k plan.

If you pass the eligibility requirements and you are still interested in maximizing your 401k contributions, it’s important to understand how Solo 401k plans work and the limits relating to yearly 401k contributions.

To expand a bit more on the requirements an example will be drawn up. For the year 2012 the maximum allowable contribution on all 401k plans is $50, 000. In addition, should you be 50 years and above of age an extra $5,500 can be allowed. If your full time job's 401k contributions amount to $15,000 there is still a remainder $35, 000 of contributions before the limit requirements are reached. If you would want to take advantage of the total allowable 401k contributions this 2012 you may elect to open a Solo 401k plan from your side business, and make the $35, 000 contributions on top of the $15,000, maximizing your 401k solo plan contributions.

Aside from this benefit, with a Solo 401k plan taken out for your side business you have full control over its assets, allowing you to make alternate investments in precious metal, real estate etc. You would also be able to access your Individual 401k funds free of tax by taking out a loan from it. Those funds could be used to invest back into your side business or for whatever purpose you may need it. The important thing to note is the fact that not all Solo 401k providers that you open your plan with allow for investing in alternate investments or allow for solo 401k loan provisions. Therefore be sure that you determine whether a Solo 401k service provider offers such deals and documentation first before opening a Solo 401k plan with them.

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