Investing in your 401k is absolutely crucial to your future financial security, and as such, it is important to know how hidden fees and other 401k provider practices can impact your investment. With investing, as in life, it is often the unexpected things that have the biggest impact. Keep reading to find out how certain aspects of typical 401k plans may impact you.
Variable Annuities are Not Necessarily the Best Choice
You may be surprised to learn that heads of large corporations, like Bill Gates, frequently sell of shares of their own companies stock in order to diversify their holdings. This may seem to be in direct contradiction with the message that your own company sends you about investing your 401k in their stock, particularly if they offer incentives and company matches to encourage said investing. The fact is, companies don’t really see inside investing as a show of loyalty, and the more that you invest into a company, the greater risk you run of loosing the majority of your investments should the company’s stock values suddenly plummet. Your career, your finances, and your security already depend on the future of your company, why risk losing even more if the company goes belly up?
You Can Contribute More To Your Solo 401K:
Thanks to recent tax-law changes, self-employed business owners can now contribute all (that’s right, up to 100%) of the first $15,000 that they earn, starting this year. If you will be turning 50 and up by the end of the year, your allowed contribution amount increases to about $20,000.
You Can Deduct More From Your Solo 401K:
Part of the recent changes is a provision that allows for options that are similar to those found in SEP and Keogh plans. Like with a traditional small business retirement plan, those who are self employed can also now deduct up to 20% of their self-employment income.
Solo 401K Options: Know Before You Invest
You know the saying: if it sounds too good to be true, it usually is. Luckily, the Solo 401K option not only sounds good, but for most self-employed business owners, provides a way to accrue greater retirement savings. Before you sign on that dotted line, however, here are a few caveats to consider.
You May Have to Contribute to Employee Accounts
Depending on your individual business circumstances, the new tax law may require that you contribute to your employee’s accounts as well as your own. This is something that corporations have been doing for years, and financial and retirement account planners have extensive experience in helping business owners like yourself handle this type of contribution, so you should plan to meet with yours.
You Must Not Miss the Deadline
The deadline for establishing a Solo 401K plan is December 31st and you must have one in place before the start of a new year in order to be eligible for tax deductions.
Explore your Solo 401K Options
The importance of meeting with your accountant and personal financial planner before investing in, or deciding on, any financial retirement plan, cannot be stressed enough, particularly if you are a small business owner with employees. Always remember that smart financial planning today leads to a more enjoyable retirement in the future.