Solo K is A.O.K for Small Business Owners Seeking Lower Taxes and Retirement Contributions.
If you missed out on the millions of bucks sent to the big corps in Uncle Sam’s stimulus program, don’t fret, you still have some options (Although, they don’t involve big financial handouts).
The Solo (k) commonly referred to as Solo K is a retirement plan set up for small business owners. Small business owners drive this economy, (in spite of what the lobbyists in DC would have us believe). As a small business owner, your tax liabilities are the most threatening thing to your financial well being right after the economy. Learning how to reduce your tax liability should be a part of every small business owner’s wealth building strategy. Knowledge is power. Let me re-phrase that, knowledge is money!
Small Business Tax-Reduction
Strategies With Solo K
Small business success is crucial for our economic recovery. Fortunately, there are some retirement/investment tools you can still use that will benefit your business and your personal financial situation.
There are lots of retirement plans available but let’s take a quick glance at the Solo K for small business. Of course, here’s my friendly reminder, this isn’t tax, legal, or investment advice and your situation is always unique. Use this info as educational and call me if you want to discuss your specific considerations.
Six Small Business Tax Benefits of Using the Solo K
Here are six reasons small business owners should look into the tax-reducing, retirement friendly benefits of a Solo K:
1. Bigger Contributions Allowed - Solo K plans may allow you to redirect more tax dollars into a retirement account. In fact it may allow larger contributions than an IRA or a Roth IRA. As long as the business owner and spouse qualify with sufficient income from their business, you may be able to contribute $49,000 each in 2011. Even more if you are 50+.
2. Tax-Free Forever – A big difference between Solo K and traditional and/or separate Roth IRAs, Solo K’s may allow qualified taxpayers to add pre-tax and after tax contributions into the same account. You may also be allowed to invest through Roth Solo K’s as well. The Roth Solo K’s may allow you to make contributions after-tax and grow tax-free.
3. No Income Ceiling – The Roth Solo K permits business owners to contribute to their Roth Solo K regardless of their income. There may be some limitations on this so check with your tax advisor. Either way, the benefits of a Roth Solo K may go way beyond the typical Roth IRA.
4. Invest in S Corporations and More – There are some restrictions in other self-directed IRAs against investing in S Corps. But, there is a friendly loophole in the tax law that allows you to use your Solo K funds to invest in other types of legal entities such as Partnerships, LLCs, C and S Corporations. Now THAT opens up some interesting opportunities!
5. Unrelated Debt Financed Income Tax (UDFI) – This one is a little more complex but if you are investing in real estate you likely know about UDFI. The Solo K gives you some interesting options for investing in assets with related debt financing. The Solo K gives small business owners/investors a few more options. See your tax expert on this one but at least be aware of the leverage power you might gain with a Solo K.
6. Lovely Liquidity and Penalty Free – 401K accounts offer the ability to borrow funds from your account with certain restrictions. The Solo K also allows you to tap in for just about any reason without tax or penalties. This liquidity is a great tool for business, investing and emergency funds.
“So, would you rather pay the IRS or yourself?”
Small business owners need to take every opportunity to reduce their tax liabilities while they invest in themselves for the future. But like everything I ever say, building financial freedom starts with the “P” word. PLANNING!
Let me know if I can be of service!
Have a prosperous day!
Gabby Huguenin