Many people retiree, get bored, and start up their own business. If you are self-employed, even if it is just part-time, you might want to look at a retirement plan that will let you sock away a lot of cash (and reduce your taxes now) to support your later years.
The Individual-401(k) will allow sole proprietors to put aside more pretax dollars than in other plans, such as profit sharing plans, money purchase pension plans, SEP IRAs, and SIMPLE IRAs. And in some cases this could be more than twice as much.
The I-401(k) is designed for owner-only businesses and those with part-time or seasonal employees who can be excluded under federal laws governing plan coverage requirements. It’s unique in that it combines the simplicity of an IRA along with the high contributions limits normally associated with a traditional 401(k). But unlike a traditional 401(k), it does not require costly administration, testing, and reporting.
Business owners can contribute up to 25% of their pay into an I-401(k). This is in addition to a $12,000 maximum salary deferral. The most you can put away though is $40,000 each year. However, if you are 50 or older, you can set aside an extra $2,000 in catch-up contributions. And if your spouse works in the business, he or she can also participate in the plan and take advantage of the same limits as you.
Like the standard 401(k), you can borrow from an I-401(k) plan. But you can do it without the troublesome administrative stipulations associated with the older plan.
Another feature that will make managing your retirement assets easier is the ability to consolidate your existing SEP or profit-sharing-plan balances into an I-401(k). No more separate accounts—you can put your I-401k, IRAs, rollovers and other qualifying retirement funds into one account.
Keep in mind that if you hire an employee, your contributions, as well as the complexity of the plan, may change. Nevertheless, if that happened, you could discontinue the I-401(k) and start a traditional 401(k).
If you have self-employment income and would like to save and cut your tax bill, return the enclosed coupon for more information on this issue.