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Solo 401k Year-End Tips for 2019

Solo 401k Year-End Tips

Now that we’ve reached December, it’s time for some Solo 401k Year-End Tips.  There are several things you must do before the end of 2019.  In the following, we’ll talk about these items, so you’re not left in the cold.  It’s essential to make sure your Solo 401k is in order going into the new year.  Once the calendar changes to 2020, you can’t go back and fix things.  In some instances, you’ll lose out the benefits of the Solo 401(k).  If you are self-employed, let’s keep your retirement plan on track.

Creating a Solo 401k

If you just started your own business (with no other full-time employees) or have any type of self-employed income, the Solo 401k is the perfect retirement plan for you. It’s specifically designed for the self-employed. It offers loads of benefits including high contribution limits, tax-free loan option and a Roth sub-account. Moreover, if you have the right plan administrator, such as IRA Financial, you can invest in just about anything you wish, including real estate and precious metals.

With the ever expanding gig-economy, it’s important to pick the retirement plan that’s best for you. The Solo 401k is best suited for most people with self-employment income. However, to take advantage of it for 2019, you must set-up your Solo 401(k) before the end of the year.

Failure to adopt the plan before December 31 makes it ineligible for contributions for the year. This shouldn’t be rushed though. Finding the perfect provider for your goals is paramount. Be sure to take your time gathering all the pertinent information about each plan administrator first. You’re don’t want to be stuck with a subpar company because you rushed through the process.

2019 Contribution Deadline

Once you have established your Solo 401k, there are limits as to how much you can contribute to the plan. For 2019, you can contribute up to $56,000 if under age 50 and $62,000 if you are age 50 or older. If your spouse earns a salary from your business, you can double those limits.

Depending on the type of business you use for your Solo 401k, that may effect your contribution deadlines. But one thing is certain, you must make your employee deferral known before the end of the year. You then have until your tax filing deadline to make the contribution.

If your business is either a “C” or “S” corporation, you are a W-2 employee, meaning you get a paycheck every week or two. Elective deferrals are usually taken from your check each pay period. Funds should be available to contribute to your 401k within seven days.

Required Minimum Distributions

Every 401k requires withdrawals once you reach age 70 1/2. This is the same for Solo 401k plans. Even though there is an exception if you are still working, most Solo 401k plans can’t utilize it. This is because you probably own more than the five percent of the business that allows this exception. Therefore, if you are at least age 70 1/2, be prepared to take a withdrawal, even if you do not need the money.

The amount you need to take is based on two factors: 1) your age and 2) the value of your 401k. Using the IRS life expectancy chart will tell you exactly how much you need to withdraw. Failure to take the entire amount will lead to penalties.

If you turned 70 1/2 in 2019, you can delay your first RMD until April. However, you will then need to take two distributions: one for 2019 and one for 2020. That may increase your tax bill more than you want, so you may be better off taking one each year. Your second (and subsequent) RMDs must be taken by the end of the year. Please note that if you have multiple 401k plans, RMDs must be calculated and taken by each account. Also note that, unlike Roth IRAs, Roth 401k plans are subject to required distributions as well.

Solo 401k Year-End Tips – Conclusion

Keep in mind of the above situations that may arise for you. Use these Solo 401k year-end tips to make sure your retirement stays on course. Missed deadlines and opportunities could derail you. Don’t forget – every dollar you put towards retirement may lessen your tax bill. Of course, the more you save, the faster it will grow!

If you have any questions about what you need to do, feel free to reach out to us @ 800.472.1043. You can also check out our app and have the power of your retirement in the palm of your hands.


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