Can A Small Business Owner Have a 401(k)?

by | Feb 24, 2022 | Business Finance | 0 comments

The short answer to this question is yes. Having a retirement plan to secure your future is quite important. A small business owner can have a 401(k). There are various retirement plan options out there for small business owners. A 401(k) is just one of them. Depending on how big your company is, your long-term retirement savings goals, along with the amount of money you have to invest, choosing a retirement plan that includes a 401(k), might be something that you decide to enlist the services of a financial expert for.

There are numerous financial advisors and financial planners out there who specialize in helping entrepreneurs establish a solid retirement plan for their future. In this article, we take a look at 401(k) plan options for sole proprietors and small business owners and how these plans might benefit you.

The 401(k) Plan for Small Business Owners

Specifically intended for small business owners or sole proprietors, a solo 401(k) is typically for those who do not have employees and are specifically looking for a retirement plan for themselves. Versus other types of retirement savings plans, with a solo 401(k), you can usually contribute more of your income than you otherwise would be able to, thereby allowing you to save for retirement more aggressively.

The Benefits of a Solo 401(k)

Again, the key here is that as a sole proprietor, you can contribute a larger share of your income to this retirement plan than you would other types of retirement savings accounts. Among the other benefits of a solo 401(k) for small business owners:

– There are various opportunities to borrow from a solo 401(k) plan. So, for example, if you need to take out money for a down payment on real estate, there are provisions within this type of retirement savings account that will allow you to do so.

– The paperwork is minimal with a solo 401(k) plan. Versus other retirement accounts that you could potentially invest in, a solo 401(k) is relatively easy to set up and administer.

– There are several essential tax incentives associated with this plan type.

Some Things to Keep in Mind with a Solo 401(k)

This type of retirement plan is designed for a sole proprietor (and spouse) with no employees who want to save for retirement. If you intend to expand and hire employees, you may want to look into other options. This way, you would be able to offer those employees some retirement savings and thus attract top talent.

Especially if you are older, you want to approach retirement savings more aggressively. Also, keep in mind that depending on how much you currently have in your retirement savings, you may want to opt for more than one type of retirement plan. A Solo 401(k) may be one part of your retirement portfolio.

Contribution limits vary depending on whether or not you are eligible for catch-up contributions. For 2022, an individual or small business owner can have a maximum deductible contribution of $61,000. Again though, if you are over 50, the plan usually does allow for catch-up contributions.

Planning for your retirement, especially if you are an entrepreneur, can seem daunting. This is why numerous small business owners will turn to a financial advisor for help. They will assess your current financial situation, determine your long-term goals, and help you create a retirement plan that makes the most sense for you.

First Union Lending is Here to Help

We work with numerous small business owners across the entire country. Our loan programs are fast and flexible, and designed with the small business owner in mind. Each loan is custom-tailored to meet a specific business’s needs; meaning, no off-the-shelf approach with us. With short-term loans, lines of credit, and merchant cash advances, among other financing options, we have a solution to fit your needs. Even if your credit score is less than ideal, we can still likely help. If you require additional work and capital for your small business, we would love to work with you. Call today, and let’s get started.

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Only U.S.-Based Businesses are Eligible