Retirement Basics
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retirement
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 solo or individual 401(k)s, let you contribute more money than other tax-sheltered retirement accounts -- up to $50,000, depending on your age and income.

Here's how: In a self-employed 401(k), you can save 100 percent of your pretax income, up to $15,500 in 2007. Those older than 50 can save up to $20,500. Plus, you can stash up to 20 percent of business income (or 25 percent of your compensation) for a combined annual contribution of $45,000 ($50,000 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 a maximum total of $50,000, 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  • Tax earnings grow tax-deferred until withdrawn.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.

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