Now that I’m back doing strategies again, I’m starting to see even more clearly just why the Solo 401(k) plan may be one of the best tax-planning tools to come along in years!
At our recent Pre-Emptive Tax Strategies seminar in Phoenix, we were lucky enough to have Tom Anderson, the founder and CEO of Pensco Trust Company, as our afternoon speaker. I am always grateful when Tom can find the time in his busy schedule to come to our events and speak to seminar attendees – his depth of knowledge regarding pensions and self-directed pension investing is absolutely phenomenal.
Tom talked quite a bit about the Solo 401(k) and Solo Roth 401(k) plans, and how they can benefit small business owners unlike anything other kind of pension vehicle. The contribution limits are high – $45,000 per person in 2007 in total, with up to $15,500 coming directly from your pre-tax salary. Once your plan has been funded, you can then use that money to invest in real estate, businesses, REITs – just about anything short of life insurance and collectibles. Solo 401(k) plans are allowed to make and receive loans from independent third parties, plus they aren’t subject to UDFI (unrelated debt-financed income tax) on the profits generated from borrowed funds!
If you are a small business owner meeting the following criteria, this may be one of the best tools you have to save for your future and pay less taxes today:
- You must have a business where you receive either W-2 or 1099 income (in other words, you must have a salary or some kind of active income)
- You and your spouse must be the only owners of the business
- The business cannot have any employees (other than you and your spouse) who work more than 1,000 hours per year
If you have been thinking about setting up a Solo 401(k) plan in your business, don’t delay! Although you have until the end of the year to get the paperwork done, you can’t contribute any salary before your plan is set up. So, waiting until December 15th to set up your plan, for example, means you can only contribute salary paid between the 15th and the 31st of December.