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The Solo 401k is a Weapon Against Inflation; Here’s Why
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Mike Metzger, Founder | CERTIFIED FINANCIAL PLANNER™

Salt Lake City, Utah

A solo 401k is perhaps the most effective retirement plan for small business owners if you’re looking for a weapon against long term inflation. With a higher contribution limit, flexibility, and Roth features, this retirement plan offers several benefits. Let’s dig in and learn more about solo 401ks for business owners.

Solo 401k’s contribution limit is higher than that of other retirement plans available. This factor alone makes this plan a highly attractive option for small business owners. The Solo 401k contributions are tax-deductible, meaning that you can increase your retirement savings and reduce your tax bill. It allows you to contribute up to $66,000 for 2023.

This plan also allows you to make an additional catch-up contribution of $7,500 for workers who are 50 years or older. This benefit is huge for small business owners looking to maximize their contributions and save more for retirement. The contribution limit for the Solo 401k is sometimes higher than salary-based plans like SEP and SIMPLE.

Flexibility is another key feature of the Solo 401k. While the 401k offered by most companies don’t permit employees to take loans, Solo 401k provides a loan availability to Invest in your business or buy something more personal, all without taxes, penalties, or a credit check. The Solo 401k allows you to borrow up to $50,000, or up to 50% of the account balance, whichever is less. This flexibility can be useful in difficult times when you need money but don’t want to withdraw from your investment account or seek credit from banks, credit unions, and personal relationships, which may add to the accumulation of interest or possible default and credit damage.

The Solo 401k plan has Roth features, making it an excellent choice to guard against inflation. The Solo 401k plans allow you to split your contributions: pre-tax going into the Traditional portion of the plan or after-tax contributions going into the Roth portion. A Roth feature allows you to take a portion of your after-tax contributions to the Roth and not be hit by higher income taxes during retirement. As you know, taxes are likely to deepen inversely with time, so by investing in a plan like this, it can shield you from increasing taxes in the future, ensuring you have more money in your retirement portfolio.

To wrap it up, a Solo 401k plan is a good weapon against long-term inflation by raising contribution restrictions, borrowing within the plan, and a Roth plan element that controls the tax implications of withdrawals and sustainable accumulation of wealth. The plan offers substantial benefits to small business owners by averting taxation and supplementing funds gainfully and flexibly. This could be advantageous by growing your savings and making them more attainable after inflation takes place.

If you want to know how to get started with a Solo 401(k) plan….


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Disclosures:

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal.  Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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