Expert Retirement Planning

TommyJoe A. Valenzuela (”TJ”) Valenzuela, Vice President of Sales and
Marketing for Trust Administration Services offers the following about Solo 401(k)s and how investors are increasingly using these vehicles.

What is a Solo 401(k)?
The Solo 401(k) is a retirement plan available to self-employed individuals or business owners that do not have employees other than a spouse.  Individuals with sole proprietorships, partnerships, corporations and “S” corporations can employ them. The self-employed individual can use a Solo 401(k) to reduce current income taxes and possibly deduct the entire amount of plan contributions from their taxable income each year.

What Does This Mean for Investors?
If you are self-employed and meet the criteria above, you may want to consider setting up a Solo 401 (k) for retirement.  Unlike other retirement plans that require small business owners to make a great deal of money to reach maximum plan contribution limits, the Solo 401(k) allows tax-deductible 401(k) salary deferrals to the plan of up to $15,500 for 2008.

Investors 50 or older can make an additional catch-up salary deferral contribution of $5,000 for 2008. In addition, business owners can make tax-deductible profit-sharing contributions of up to 25 percent of compensation, with an annual maximum of $46,000.

The maximum contributions for a Solo 401(k) can be significantly greater than with other plans. A self-employed business owner, age 50 with $100,000 in compensation, may save up to $20,000 more with a Solo 401(k) than with the SEP IRA. Investors can also make tax-free loans in a Solo 401(k) of up to 50 percent of the total 401(k) value with a maximum of $50,000, unlike with other accounts.

As with an IRA, or other accounts, investors can also use the Solo 401K to diversify investments beyond traditional stocks and bonds to also including alternative investments such as real estate, private stock, tax liens, trust deeds, or other private assets.

One item of note, Solo 401 (k) accounts must be established and funded by the end of a given calendar year to be counted for that year.   Investors cannot contribute into the following year and have it count toward the previous year, as can be done with some retirement accounts.