When you own your own business or work as a sole proprietor, you don’t have the luxury of participating in an employee run retirement plan. For Hunter Estess, owner of Dash Development and Holdings, this means investing in an individual 401(k) plan, also known as the solo 401(k). These plans work much like the traditional 401(k) plans that are offered by large companies but is strictly designated for sole proprietors who don't have any employees.
Just like the traditional 401(k) retirement plan, solo 401(k) plans can be either designated as a traditional or Roth IRA. A traditional plan, you are able to save money on a pre-tax basis, meaning that it grows tax-deferred until you withdraw it. At the time of withdraw, you are required to pay taxes on the money. A Roth IRA allows you to invest after-tax dollars and your money grows tax-free, meaning you aren’t taxed when you withdraw the funds.
If you are planning on investing large sums of money, these types of plans are ideal. Individual 401(k) plans allow you to save for your retirement as both an employer and an employee. This means you are able to contribute more to your plan than you would with other retirement plans. As an employee, you are able to contribute up to $18,000 every year, and as the boss, you can contribute an additional twenty-five percent of your income, with a maximum of $53,000, which includes your employee compensation.
These types of plans are appealing if you plan on socking away large sums of money. For Hunter Estess, a Solo 401(k) plan is the perfect investment option for his retirement as a sole proprietor and business owner.