Understanding Self Employed 401K Plan

2008-09-29 10:56:56

( Insurance )



If you are looking for self employed retirement plans, then you may want to consider the self employed 401K. Self employed 401K is a retirement plan which is designed for small businesses which employ immediate members of the family, and those businesses that hire employees, such as part-time workers, who cannot qualify to participate in other plans.

Advantages of Self Employed 401K

* Unlike other retirement plans in the market, self employed 401K allows you to contribute a higher amount and helps you to avoid some tax bills.

* If you need money while you are still contributing to the plan, you can actually get a loan against your self employed 401K provided that your plan administrator allows it.

* If you have other self employed retirement plans, you are normally allowed to roll them over to your self employed 401K.

* In case your income varies from one year to another, you may choose not to contribute during the lean years. This is often a feature of self employed 401K plan which is not available in other plans.

When Self Employed 401K Does Not Apply

There are instances, however, when self employed 401K does not make sense. These instances include:

* When you are earning a high income, then you are better off with other self employed retirement plans. Self employed 401K plans do not make sense if your net profits are over the maximum limit for a certain business.

* If you are planning to have an expansion and you would need to hire other employees who are not members of your immediate family, then self employed 401K is not recommended. The moment you hire a full-time employee, you will have to comply with the requirements set by the federal government as regards contributions to retirement plans. This results in the increase of your administrative expenses.


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