Individual 401k Plan

Individual k or Solo 401k is a retirement plan designed for self-employed business owners to help them maximize their savings for retirement. The biggest mistake business owners can make is to ignore their retiring prospects and shy away from a good retirement plan just because they don’t understand it. Bellow are the four most common misconceptions about Individual 401k Plan:

Misconception #1: You need to have an established business entity in order to qualify

Although Individual 401k plan is a great option for qualified business owners, they are not the only ones who can benefit from this retirement plan. A Solo 401k is created for self-employed individuals. That means as long as a person has an income stream from a self employed activity, he or she will qualify for a Solo 401k plan. This self-employed activity doesn’t have to be the person’s full time career either. It could be a part time freelancing job beside their full time employment elsewhere.

Misconception #2: It is expensive to maintain the retirement fund

While all 401k plans come with certain fees and administrative work, an individual 401k plan can be quite affordable. The plan is flexible, it allows account holders to act as a trustee, and therefore forgo any fees related to hiring a custodian for the plan. Also, accounts of less than $250,000 in assets do not require tax-filing at the end of the year.

In order to keep the cost down, make sure you choose the right providers, as each provider has his own fee structures.

Misconception #3: The whole process is just too complicated

This issue can also be eliminated with the right plan provider and the right service. Plan ahead what services you need in order to maintain your fund. A good 401k plan provider will offer all the services you need, such as preparing application, setting up the plan, or taking care of loan application process.

Misconception #4: All 401k plans deal only with stock and funds, I’d rather invest in other assets I know better

The unique point of an individual 401k is that account holders are able to choose the self-directed option. Unlike a traditional 401k account, self directed individual 401k accounts allow  many investment possibilities, including real estate, private business, and precious metals. Chances are, you will be able to find a type of investments that you are much more comfortable with. Plus, like other 401k plans, your investment is tax-deferred (or tax-free in case of Roth plans). So investing with your retirement fund will still be a wiser choice.