Sarasota, FL / Bradenton, FL

Why Sarasota entrepreneurs should use the solo 401k

Many people utilize their company’s 401(K) as their primary retirement plan in Florida. This is great, especially considering many companies have a matching program that empowers workers to save for retirement in a powerful way. My advice to anyone with a matching program is to fully take advantage of it – your retired self will thank you for it! But what about those who don’t work for someone else, such as an entrepreneur or a freelancer? How can they save for retirement as effectively as a traditional employee? The answer is the Solo 401(K).

Can’t You Just Use an IRA?

There is, of course, the IRA – but the contribution limits are very low. If you’re an entrepreneur in a higher-earning area such as Sarasota, you probably want to plug more into your retirement plan than an IRA allows. The Solo 401(K) is the answer to that problem. It has many key advantages over the IRA and can even offer you greater benefits than a company 401(K).
Firstly, the Solo 401(K) allows you to contribute as both an employer and an employee, leading to greater overall contribution limits. As of 2022, you can sock away $61,000 into your Solo(K) – compare that to the measly $20,500 of a corporate 401(K). The Solo(K) has an even bigger advantage when it comes to taxes. You can put $20,500 into the Roth account of your Solo(K) plan, as opposed to only $6,000 into a traditional IRA. Since Roth accounts are ‘post-tax’, these funds will grow tax-free.

Catch-Up Contributions

Like other retirement plans, the Solo(K) bumps up its contribution ceiling once you reach 50 years of age. New contribution limits as of 2022 amount to $67,500. Below you can find a convenient graph to compare all the possible contribution limits:
Graph comparing retirement plans
The benefits don’t only boil down to contribution limits, however. The Solo 401(K) is only for those who are Sole Proprietors, aka sole business owners, and it is only for those without any employees… with one exception. Your spouse, if she earns money through your business, can also contribute to the Solo up to a certain percentage of their earnings.

Protected Status

There’s one more big bonus regarding the Solo(K). Creditors cannot touch any funds placed in it. If you have fallen on hard times, or even gone bankrupt, your Solo(K) funds are still protected by the government. In fact, the Solo(K) offers more protection than even the IRA or 401(K). That means you can rest assured that, no matter your circumstances, your funds will still be there once you reach retirement age.

In Conclusion

The Solo 401(K) isn’t the only retirement plan out there for the self-employed and it may not be the best for your unique financial situation. Stay tuned to discover other ways to save for a long and fruitful retirement, such as through the SEP or SIMPLE IRA. In the meantime, feel free to make an appointment for a personal consultation, either in person in Bradenton or Sarasota, over the phone, or through Zoom.

About the Author

  • Douglas Walters

    Doug is the Managing Partner of Walters Strategic Partners, LLC, a licensed Registered Investment Advisory firm. Doug is a licensed Certified Public Accountant (CPA) in the state of Florida and holds a Series 65 Investment Advisor Representative securities license. He is also a member of the AICPA. With over 28 years of experience as a CPA, he believes investment decisions should be based on decades of peer-reviewed research rather than relying on the latest “hot tip” from media outlets. This empirical evidence puts the science of investing to work for his clients.

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