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401(K) – Self Employed

Self Employed 401(K) Account

Individual or self-employed 401(k) plans offer retirement planning benefits for self-employed individuals and owner-only businesses and partnerships.  Self-employed 401(k)s are similar to traditional 401(k) plans, except that they only cover one individual.  These plans allow for higher contribution amounts and more flexibility on contribution time limits than many other types of retirement options. Self-employed 401(k) plans provide the opportunity to benefit from tax-deductible contributions and tax-deferred growth, with the added benefit of pre-tax salary deferrals.

Benefits of Self-Employed 401(k) Plans

Investing in self-employed 401(k) plans provides benefits to self employed individuals and owner-only businesses looking to put aside money now for use during retirement years, while providing the opportunity to recognize potentially substantial income tax savings.  Businesses that are unincorporated can deduct 401(k) contributions from personal income and incorporated businesses can deduct contributions as a business expense.  Benefits of self employed 401(k)s include:

  • Higher tax savings – Self employed 401(k) plans generally offer higher tax savings than SEP-IRAs or profit sharing plans, as well as traditional IRAs.
  • Salary deferrals – In addition to the benefit of contributing up to 25% of earned income, a self-employed business owner can also take advantage of a salary deferral option, as well as a catch-up deferral if over the age of 50.  This can greatly reduce current taxable income.
  • Tax-deferred growth – Any potential earnings accumulate tax-deferred.  This means that you are not required to pay taxes on earnings until you withdraw the assets during retirement.


Self-Employed 401(k) Rules

There are various rules for self employed 401(k)s.  These include:

  • Self employed business owners can contribute up to 25% of earned income, up to an annual maximum (this is considered the profit sharing contribution).
  • Salary deferrals can be contributed in addition to the profit sharing contribution, up to a maximum contribution set by the IRS (in 2016, the max salary deferral limit is $18,000).
  • Catch-up salary deferrals of up to $6,000 can be made for business owners over age 50.
  • Withdrawals from self-employed 401(k) plans cannot be made before age 59 ½ (without penalty), with required minimum distributions starting at age 70 ½.
  • A 10% penalty will be administered for withdrawals that occur prior to age 59 ½, in addition to taxation of withdrawal amounts.
  • All withdrawals will be taxed at investor’s current income tax rate.

Open a Self Employed 401(k)

If you would like more information about opening a self-employed 401(k) plan, contact one of the experienced retirement planning specialists at Alamo Capital.  We can help you create a long-term plan to meet your retirement goals and can advise you on how self-employed 401(k)s can fit into your overall retirement planning portfolio if you are a self-employed business owner.

Contact us toll-free at (877) 68-ALAMO – or – (877) 682-5266, email us at or fill out our brief contact form for more information about self-employed 401(k) plans or to open a self-employed 401(k).

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