100% Contributions with Solo 401k

I am a self employed fashion designer. I have independent income other than my earnings from my designing business because of which I can save 100% of these earnings. Can I contribute my entire earnings with a 401k plan? Vivian J. Maya, North Naples, FL, fashion designer.

If you set up a Solo 401k plan for your fashion designing business, you can save up to 100% of your earnings. The maximum limit for contributions with this kind of 401k plan is $49,000. The Solo 401k is a retirement benefit plan especially designed for self employed persons like you who want to maximize their savings in this plan.

This plan is very similar to the regular 401k but there are some special advantages (like the 100% salary contribution) that make it the ideal choice for the self employed. Borrowings are allowed from the Solo 401k up to a maximum limit of $50,000. You can take a loan of half your account balance in this account subject to this condition.

If you already have an IRA account or an existing 401k plan at your previous employer’s then you can roll the funds from these accounts over into your new Solo 401k plan. Once the transfer is complete, these funds can be utilized in the same manner as you would use your regular contributions to this plan.

A Solo 401k is not a great idea for a business that has employees. If you make maximum contributions to your Solo account you will also have to match the same for all your employees. This is one aspect to consider well before you set up a Solo 401k for your business, especially if you propose to add employees at a later stage. In such case, choose a software package like http://401k-easy.com that lets you switch from a one person plan to a regular plan with minimum hassle to set up your 401k plan.