If you’re one of the 15 million Americans who is self-employed, you know, and probably dread thinking about retirement. In simple terms, it’s difficult to save for your future when you’re on your own, and have no employer to offer a pension or 401K program, nonetheless a matching 401K program.
So, what are those 15 million Americans supposed to do? Maybe you think you need a large sum to open up an account, or you think that you’re not able to open up a 401K because you’re a freelancer, but in reality, it’s pretty simple to setup and manage a self-directed 401K.
One big reason that 401K plans are often considered too complex and confusing is that there’s a government requirement that subjects them to nondiscrimination, and other tests that run checks and balances to make sure that a 401K plan benefits all enrolled employees, not just a select few employees, or just the owners. Since Individual 401Ks only cover owners and their spouses, there is no conflict of interest, and this added testing does not apply.
Since self-directed 401Ks can include more than one owner, they for sure are ideal for businesses with more than one owner. There are tax-deferral benefits that are available to multiple owners and spouses who derive income from the business, ensuring that all owners can equally take advantage of tax benefits.
Only hinge to that is that once your business hires employees who don’t have ownership stake in the company, it’s required by law to convert the plan to an employee-based 401K, so that all may benefit equally.
You may have big plans to grow your business, hire employees and perhaps even cash out down the road. In the meantime, an Individual 401K can help you plan for your future retirement goals.