Retirement Tip for Entrepreneurs
Entrepreneurs and small business owners often think that their only retirement plan involves an IRA. The 401(k) was historically only used by large companies and their employees, however, it has evolved into a flexible savings vehicle for people outside of corporate America.
IRA vs. 401(k)
The SEP IRA is kind of like a power-boosted IRA account that runs on IRA rules, while a Solo 401(k) is an employer-based retirement plan that can be used by business owners who have no employees. Keep in mind that the Solo 401(k) is only available to self-employed persons, while a standard 401(k) would include multiple employees. It is called a "Solo" 401(k) plan because only the business owner and his or her spouse can participate in the plan.
The Solo 401(k) approach has some benefits
Under a Solo 401(k), you can serve as your own trustee and administrator, saving you administrative costs and giving you more control of your investment choices. Furthermore, under a SEP, you can contribute up to 25% of your salary or self-employment income, however, a Solo 401(k) gives you a much more cost-efficient contribution strategy. You can contribute $18,000 ($24,000 if you are 50 and over), plus 25% of your salary or self-employment income.
This creates tremendous tax savings when you couple your 401(k) with an S-Corp.
When it comes to investing the money in your 401(k) or other retirement accounts, don’t feel cornered into using one of the “traditional” or “common knowledge” options that are available. You don’t have to settle for a select group of mutual funds when investing your retirement money.
Instead, you can self-direct your IRA into all kinds of legal investments, including small companies, real estate, loans, or precious metals. Speaking with your investment counselor can help you decide what’s right for you.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
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David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC
Founded in 1976, David Lerner Associates is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Teaneck and Princeton, NJ; and White Plains, NY. For more information contact David Lerner Associates Call 516-921-4200 Visit our website: www.davidlerner.com
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