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).
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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| Self-employed 401(k) at a glance |
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Suited for self-employed, especially high-earners. |
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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. |
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Tax earnings grow tax-deferred until withdrawn. |
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