The one-participant k plan isn't a new type of k plan. It's a traditional k plan covering a business owner with no employees, or that person and his or her spouse. These plans have the same rules and requirements as any other k plan. The business owner wears two hats in a k plan: employee and employer. Contributions can be made to the plan in both capacities.
Solo Roth 401(k) Gives Self-Employed Business Owners A Tax And Retirement Boost
Individual (k): A Top Choice for Sole Proprietors
At the end of , I amended and restated my solo k plan from a prototype plan sponsored by Fidelity to a prototype plan sponsored by Ascensus. I did that in order to enable non-Roth after-tax contributions for so-called mega backdoor Roth. This article documents the whole process. It will remind me what to do in the years to come. In a workplace k plan, you go to a website or you fill out a form to indicate how much you want to contribute to your k plan. For my solo k, I created a paper form as the plan administrator.
Why you might want both a traditional 401(k) and a Roth
The biggest question you need to ask yourself when deciding to invest in a Roth k or Traditional k is do you think your tax bracket is higher today or will be in the future? Whether you invest in a Traditional k before tax or Roth k after tax , you will still be taxed at your effective income tax rate either going in with the Roth k or going out at withdrawal with the Traditional k. So the big decision is are you planning to be making less or more money in the future when you want to start withdrawing from your k? This is why in my opinion a Roth k will make you richer than a Traditional k. You should check with your company and strongly consider investing in a Roth over a traditional K if you have one available.
There is a new Solo k contribution deadline for Previously, you would have had until December 31, , to establish your Solo k plan, which would allow you until April 15, the Tax Filing Deadline to make contributions. Now, you have until April 15, , to get a new Solo k account opened for and make contributions. Your business must adopt a new Solo k by April 15, , in order to make contributions.