401k ?'s and tax implications for self-employed....

[thefed]

If i start up a 401k for my business, a self directed 401k, i can still ONLY contribute up to the max, right?

What if my company (that i own) matches me 100%? What about 150%? Could my company then write off that contribution against it's earnings? Sounds too good to be true...but I'm sure I could do it somehow. Do I need to be incorporated? LLC? Sole proprietorship (I am now)

Thanks guys!

 

[brewer12345]

You can shelter $40+K in a solo 401k. I would give Fidelity a call. They made it very easy for me to set up my wife's solo 401k.

 

[retire@40]

You can shelter $40+K in a solo 401k.  I would give Fidelity a call.  They made it very easy for me to set up my wife's solo 401k.

Of course they made it easy, they just want your money.

Fidelity won't give personal tax advice regarding what the best plan is, how much is deductible and how to deduct it, effects on other income, alternative methods of income reduction, special allocation strategies, etc.

A local lawyer and CPA can help a business owner make intelligent decisions in these areas before he jumps into something he may regret later.

 

[Gone4Good]

If i start up a 401k for my business, a self directed 401k, i can still ONLY contribute up to the max, right?

Yes, you can only contribute up to the maximum. For an individual 401(K) that is $42,000 for the 2005 tax year. However, there are rules governing how much you specifically can contribute based on how much your business earns - which limit your contributions below the 'maximum'. I would avoid trying to liberally interpret the tax rules to get a bigger deduction. Certainly check with a tax professional to find out how much you can contribute and which of the several retirement plans is best for your specific situation.

 

[NYCGuy]

If i start up a 401k for my business, a self directed 401k, i can still ONLY contribute up to the max, right?

Although most self-employed set up defined contribution plans, I believe that it is possible to set up a defined benefit plan. The retirement benefits could be as generous as you wished. Then the company would have to fund its new liability, which could soak up some or all of the profits. I haven't done this, but remember reading about it some years ago when I was self-employed briefly. I have one self-employed friend who has done something along these lines, but I don't know the details. Most accountants don't seem to know about it. Only works if there are no employees.

 

[Gone4Good]

Although most self-employed set up defined contribution plans, I believe that it is possible to set up a defined benefit plan.  The retirement benefits could be as generous as you wished.  Then the company would have to fund its new liability, which could soak up some or all of the profits.  I haven't done this, but remember reading about it some years ago when I was self-employed briefly.  I have one self-employed friend who has done something along these lines, but I don't know the details.  Most accountants don't seem to know about it.  Only works if there are no employees.

Oh no!!! Another under funded defined benefit plan in the works. I wonder if you can foist the pension plan off on the PBGC once your employer decides to close up shop. Could be a sweet deal.

 

[retire@40]

Although most self-employed set up defined contribution plans, I believe that it is possible to set up a defined benefit plan.  The retirement benefits could be as generous as you wished.  Then the company would have to fund its new liability, which could soak up some or all of the profits.  I haven't done this, but remember reading about it some years ago when I was self-employed briefly.  I have one self-employed friend who has done something along these lines, but I don't know the details.  Most accountants don't seem to know about it.  Only works if there are no employees.

Most accountants do seem to know about it. That's why they don't recommend it to most self-employed individuals.