Choosing a Retirement Plan for the Self-Employed: Solo 401(k)s, SECURE Act, Roth Conversions, CARES Act

Description

Retirement plans are effective financial-building, tax-saving tools for business owners and employees. The ownership structure (individual, LLC, S corporation, etc.), number of employees, owner's retirement goals, and each business' unique characteristics are all considerations when choosing the most appropriate retirement savings vehicle.

A solo 401(k) allows taxpayers to set aside $19,500 in elective deferrals and an additional $6,500 if 50 or older (2020). Plus, you can make profit-sharing contributions in addition to the deferral up to $57,000 (2020). They allow for a mix of pre- and post-tax contributions and substantially higher contributions than your traditional IRAs. However, the solo 401(k) is only available to self-employed taxpayers.

Larger employers may want to consider a defined benefit or contribution plan. These are more complex but allow for loans and withdrawals of contributions. Profit-sharing plans come under the umbrella of defined contribution plans and often contain a deferred element for 401(k) contributions.

Complicating the mix are the recent changes to retirement plans under the SECURE and CARES Act. Required minimum distributions are suspended for 2020, and early withdrawal penalties don't necessarily apply. Declines in market value can make this a prime time for Roth conversions.

Listen as our panel of retirement plan experts reviews the numerous options available for future savings, including IRAs, solo 401(k)s, defined benefit plans, profit-sharing plans, and the recent changes made impacting retirement withdrawals, including RMDs and hardship distributions.