Self-employed 401(k) allows big savings
There's good news for individuals, especially high-earners, seeking to save hefty sums for their golden years.
Self-employed 401(k)s, sometimes called one-participant, solo or uni-k 401(k)s, let you contribute more money than other tax-sheltered retirement accounts -- up to $57,500, depending on your age and income.
Here's how: In a self-employed 401(k), you can contribute 100 percent of your pretax salary, up to $17,500 in 2014. Those older than 50 can contribute up to $23,000, plus, you can stash up to 25 percent of your compensation according to the specific plan, for a combined total annual contribution of $52,000 ($57,500 for those over age 50).
Self-employed 401(k) at a glance
- Suited for self-employed, especially high-earners.
- Higher contribution limits at same income levels than with other retirement accounts, but up to an annual maximum total of $57,500, depending on age and income.
- Tax earnings grow tax-deferred until withdrawn.
That's not to say the plans don't have drawbacks. Since you have to file annual reports with the IRS, the plan can be more of a hassle to administer than a traditional IRA or SEP IRA. But those looking for some financial flexibility can take tax-free loans of up to half of the value of a solo 401(k), not to exceed $50,000.