The $50,000 Loophole Making the Self-employed Rich

workhomeSo you don’t have the big corporate job with great health care benefits, yearly bonus and 401(k) plan. Are you doomed to be poor in retirement? If you freelance, consult part time or just like being your own boss there is a $50,000 government tax break you NEED to know about. It’s called a Solo 401(k). Here’s what you need to know.

  • The Solo 401(k) was created by the Economic Growth & Tax Relief Reconciliation Act in 2001 to encourage small business growth.
  • The Law allows businesses with one full-time employee/owner to contribute up to $50,000 to the plan every year.
  • If you own a business with your spouse the allowance doubles to $100,000 annually giving an exception to the “one-employee/owner” rule.
  • The $50,000 contribution is meant to even the playing field with those who have traditional employer sponsored 401(k) programs where individuals can sock away up to $17,000 (in 2012) and many employees get that $17,000 matched dollar for dollar by their employer.
  • Also referred to as Individual 401(k) plans you can set one up at any brokerage like Charles Scwab, Fidelity, TD Ameritrade or Vanguard.

The Solo 401 (k) isn’t for everyone but if your’re bringing in enough cash from your business or freelance work and want to prepare for retirement this could be the best option for you.

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