Self-Employed 401(K) – Are They Worth the Trouble?


Being self employed is traditionally a status that most people aspire to. It is certainly a desirable position to be in. You have become your own boss, you control your income, and you are in charge of making many important business decisions that will ultimately impact the future successes and progress of your business. It is not challenging to understand why the freedoms typically associated with being self employed are sought after by people in mass amounts.

Owning your own business also means that you will have the responsibility of making every financial decision for the business. Often times, self employed people are interested in starting to save for their retirement. Because the self employed don’t work for a company with some established options for retirement saving, they have to do some additional research on their own to find self employed retirement investment options. If you own your own business, you can expect to have to make all of the payments to your retirement investments yourself. Often, when employed by a company, these payments are already taken out of your paycheck in advance.

There are a variety of retirement investment options available to the self employed. A common choice by business owners for retirement saving is to invest in a self-employed 401(K). There is some information specifically regarding self-employed 401(K)s that a business owner should know and keep in mind when determining if a self-employed 401(K) is the right retirement investment option for you.

A self-employed 401(K) plan basically provides the business owner with the ability to build a retirement fund very similar to the way an employee establishes this investment while working for someone else. Self-employed 401(K)s offer the business owner the opportunity to contribute their net income and a percentage of the business profits tax free. With a self-employed 401(K) plan, the business owner can expect to save money on taxes by deducting all retirement contributions. Another helpful aspect business owners with a self-employed 401(K) plan enjoy is the ability to borrow against the funds. This is certainly a benefit to the business owner in that cash can be quickly obtained from this fund if it is ever necessary. It provides security in knowing that you do have an additional option for getting a loan if your business ever needs it.

As with employee 401(K) plans, the self-employed plans have contribution limitations too. Each individual self-employed 401(K) plan offers some varying benefits, but in general you can expect to contribute up to 20% of your business profit yearly. However, your financial contributions of any sort cannot exceed the maximum allowable amount, which has been determined and set by the federal government. The exact amount and ratios of your business income that can be contributed to the plan should be easily accessible and clearly stated in your self-employed 401(K) rules.

With the economic state being as shaky as it is, it is more important than ever to look into investment options thoroughly. There have been reports of investment companies providing some information about self-employed 401(K)s that may not be completely accurate. Quite a few companies offering 401(K)s to the self employed have presented contribution data in a somewhat confusing manner, leaving many business owners with the belief that they can make much larger financial contributions to the plan than are allowable by law.

It would certainly be beneficial to choose an investment company you trust when looking into a self-employed 401(K) for your retirement saving needs. Research the companies you are considering investing with and find out what other consumers have experienced. You can easily access many different investment companies offering 401(K) plans for the self employed by completing an online search with the words “self-employed 401(K).” You can expect to be presented with an overwhelming amount of websites to choose from. You can easily find customer reviews online as well. Again, perform an online search with the name of the investment company you are considering and the words “self-employed 401(K) customer reviews.”

Get as much information about an investment company as you can before signing any contracts or investment agreements. Ultimately, in the end, only you can decide if you think a self-employed 401(K) is worth the trouble for your business.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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