In this lesson, we will discuss Solo 401(k) retirement plans for self-employed individuals and small business owners with no employees other than themselves and their spouses.
Which of the following individuals is eligible to open a Solo 401(k) plan?
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A) A full-time employee at a large corporation would likely be eligible for a traditional 401(k) plan. B) A self-employed consultant without employees is eligible for a Solo 401(k) plan. C) A small business owner with ten employees would not be eligible for a Solo 401(k) plan, as it is designed for businesses with no employees other than the owner and their spouse. D) A part-time employee at a small business would likely be eligible for a SIMPLE IRA or another retirement plan offered by their employer.
What is the primary difference between a Solo 401(k) plan and a SEP IRA?
A) The primary difference between a Solo 401(k) plan and a SEP IRA is the contribution limits, with Solo 401(k) plans generally allowing for higher contributions. B) Both plans are designed for self-employed individuals and small business owners. C) Both plans offer tax-deferred growth and similar tax treatment of contributions. D) Both plans typically offer a wide range of investment options.
At what age must a participant in a Solo 401(k) plan begin taking required minimum distributions (RMDs)?
A) At 59.5, participants can begin taking penalty-free withdrawals from a Solo 401(k) plan, but RMDs are not required at this age. B) Age 65 is a common retirement age, but RMDs are not required. C) Age 70.5 was the previous age for RMDs, but this changed with the passage of the SECURE Act in 2019. D) Age 72 is the current age at which participants must begin taking RMDs from their Solo 401(k) plan.
In the early 2000s, the Solo 401(k) plan gained popularity as a retirement savings option for self-employed individuals and small business owners. This was partly due to the Economic Growth and Tax Relief Reconciliation Act of 2001, which increased contribution limits and made other changes to retirement plans, making the Solo 401(k) more attractive to eligible individuals.
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Example Series 65 Example Practice Question
A self-employed graphic designer opens a Solo 401(k) plan to save for retirement. She contributes the maximum amount allowed each year, taking advantage of the tax-deferred growth and the catch-up contributions as she ages. By the time she retires, she has accumulated a significant nest egg to support her retirement lifestyle.
Solo 401(k), a plan that's here to stay, for self-employed folks who want to save their pay.
- Annual contribution limit: The maximum amount that can be contributed to a Solo 401(k) plan each year, which includes both employee and employer contributions. - Compensation limit: The maximum amount of compensation that can be considered for calculating contributions to a Solo 401(k) plan. - Catch-up contributions: Additional contributions allowed for individuals aged 50 or older.
- Annual contribution limit: For 2023, the total annual contribution limit is $66,000, or $73,500 for those aged 50 or older (including catch-up contributions). - Catch-up contributions: For 2023, individuals aged 50 or older can make an additional catch-up contribution of $7,500.