Self Employed 401ks

Written by Jacey Harmon
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Self employed 401Ks are a great tool for owner/operators of small businesses that want an affordable yet flexible retirement planning vehicle. Before the Tax Relief Act of 2001, retirement funding vehicle options were limited for the owner operated small business. Small businesses are finally able to take advantage of the benefits available with traditional 401Ks without the heady costs.

A Summary of Self Employed 401Ks

A small business is required to meet certain eligibility criteria before being able to utilize a self employed 401K. The main requirement is the business must employ only the owner or the owners' immediate family. There are certain situations where a company with employees may qualify. Visiting with a financial consultant will aid in determining if you are eligible for self employed 401ks.

Self employed 401Ks have a high contribution limit. In some instances, an individual can contribute as much as $41,000 every year until retirement. The amount that one can contribute is determined by the size and profitability of the business. Contributions into a self employed 401K are completely discretionary.

Since self employed 401Ks are qualified retirement plans they have the same special tax benefits that other retirement plans have. Investments into self employed 401Ks grow tax deferred allowing for uninhibited compounded growth of the portfolio. Contributions into these accounts also reduce taxable income as contributions are tax deductible. Self employed 401Ks offer tax-free, penalty free loans from the plan.


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