Similar to a 401(k) used at companies across the country, a Solo 401(k) lets small-business owners share the fun and benefits. The business must be very small, however, limited to the owners of the business and their spouses.
The Solo 401(k) allows business owners to put away more money than a SIMPLE or SEP IRA, and there is some flexibility when it comes to contributions. You can contribute more or less every year, but a maximum of $16,500 for 2009.
A profit sharing component can also be added to the Solo-K.
“Business owners can add the profit sharing part to maximize contributions to the plan. The employer can make a maximum tax-deductible contribution to the plan of up to 25 percent of compensation,” says Robby Schultz, a financial adviser with the CPA firm, Rollins and Associates.
- Who can open one: Self-employed business owners with no employees other than a spouse.
- Cost and complexity: Medium.
- Employer contribution limit: $16,500 of salary deferral plus 25 percent of compensation, or $49,000, whichever is less, if a profit sharing component is added to the plan.
- Employee contribution limit: Not applicable.
- Annual reporting requirements: Yes.