3 ways that self-employed workers can cut taxes and increase retirement savings

By Stuart Robertson

Sponsored by: 4Life Research USA
If you do not own a business yet, there is no better time than right now to be one.

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When many of the 15 million self-employed people in the United States think about retirement planning, fear and confusion often abound. Freelancers and homeowners just think they are too small for a 401 (k), or they think starting a plan is too expensive. Actually, creating and managing an individual 401 (k) can be simple and straightforward, and new digitally enabled providers even allow owners to quote and set up an online plan.

If you are looking for ways to reduce your 2016 tax bill and plan your retirement, starting a 401 (k) Individual Plan can be a smart decision before the end of the year. But remember, it is always a good idea to talk to a trusted financial advisor and tax advisor before you go ahead with any retirement or business planning decisions.

Here are three ways Solo 401 (k) s can benefit sole proprietorship companies.

1. You get up to $ 53,000 in deferred tax investments per year.

With a 401 (k) individual, business owners can make deferred tax contributions totaling $ 53,000 if they are under 50 - a figure that jumps to $ 59,000 once the taxpayer turns 50 or older of the incomes). That is important and could even lower you a tax stretch while also putting away a significant amount for retirement.

With the self-employment rate among workers age 65 and older, reaching 15.5 percent last year, this threshold offers the potential to hold much more money than other retirement vehicles (including the IRA's upper limit of $ 5,500 - $ 6,500) In retirement goals if you have fallen behind.

Solopreneurs can reach their individual 401 (k) profit-sharing limit up to 20 percent of the reported net income if an LLC operates, or 25 percent of the W-2 compensation if the company joins.

Individuals can also make personal contributions as employees up to $ 18,000 ($ 24,000 once they are 50 or older) to help them reach the maximum contribution amount.

This same limit is valid in employers' plans, but in that case, the contributions of the company go to all participating employees, making it more expensive and more difficult to reach the limit of $ 53,000. Since you are both the employer and the employee in a 401 (k) individual, you have the flexibility to pay and contribute as an employee, employer or both.

2. The 401 (k) s individual may include multiple owners and spouses.

Individual 401 (k) s can be a good fit for businesses with more than one owner. Tax deferral benefits are available to multiple homeowners and spouses who earn income from the business, ensuring that partnerships and collective owners can also take advantage of these vehicles.

But once a company hires employees who do not own a stake in the company (or less than five percent) in the company, it is necessary to convert the plan to a 401 (k) employee.

3. You can avoid some complex regulations.

One reason 401 (k) plans are often considered complex and confusing is a government requirement that subjects them to non-discrimination and other evidence that supports a 401 (k) plan benefits all enrolled employees, not only A niche group of highly compensated homeowners or employees. Since 401 (k) s individuals only cover owners and their spouses, there is no conflict of interest and this added proof does not apply.

You can have big plans to expand your business, hire employees and maybe even cash on the road. Meanwhile, a 401 (k) individual can help you plan your future retirement goals while also reducing your tax obligations today.