Solo 401k Plan:The Mother Lode of Tax Breaks for Sall Businesses

Solo 401K plans are retirement plans that provide for discretionary employee and employer contributions. These Plans were created in 2001 by the Economic Growth and Tax Relief Reconciliation Act (EGTRRA). The act allowed for changes to the laws governing traditional 401K plans. The changes allowed small businesses to enjoy the advantages of 401K plans without the costs that accompany regular 401K plans. Some estimate that 19 million people may be able to take advantage of these plans.

You can if you are a self employed with no common law employees. Eligible self employeds include sole proprietors, partnerships, S-Corps, C-Corps, LLC's and small family businesses. You can also have a Solo 401k plan if you have a part-time job in addition to your fulltime position. You can not have any fulltime regular employee other than spouse and in certain cases, your children. However, if your plan is set up properly you can have part-time or occasional employees as long as they do not work more than 1000 hours in a twelve month period.

A Solo 401k plan provides many features including:
1. You can tax defer up to $15,500 a year as employee contribution
2. You can deduct 25% of your compensation (net income) up to $45,000 as an employer contribution.
3. You can deduct an additional $5,000 above the $45,000 limit if you are age 50 or older.
4. You can have a tax free retirement from making Roth 401k contributions.
5. Your Solo 401k account is protected from creditors in bankruptcy.
6. Your Solo 401k plan can consolidate your traditional IRA, 403(b), or corporate 401k rollovers. However, It can not hold a Roth IRA.
7. You can borrow 50% of your total Solo 401k account balance up to $50,000.

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