Choose one roughly $100k yearly income
For a sole proprietor with an annual income of approximately $100,000, a Solo 401(k) plan is a compelling option to maximize retirement savings and reduce taxable income.
Key Benefits of a Solo 401(k):
• High Contribution Limits: In 2024, you can contribute up to $23,000 as an employee. Additionally, as the employer, you can contribute up to 25% of your net earnings, with the total contributions not exceeding $69,000.
• Tax Advantages: Contributions are tax-deductible, effectively lowering your taxable income for the year.
• Catch-Up Contributions: If you’re 50 or older, you can make an additional catch-up contribution of $7,500, increasing your total contribution limit to $76,500.
Considerations:
• Administrative Requirements: Solo 401(k) plans may have more administrative responsibilities compared to other retirement plans, especially as your account balance grows.
• Eligibility: This plan is suitable if you have no employees other than a spouse.
Given your income level, a Solo 401(k) allows for substantial contributions, providing significant tax benefits and accelerating your retirement savings. It’s advisable to consult with a financial advisor to tailor the plan to your specific financial situation and retirement goals.
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As a sole proprietor aiming to reduce taxes while saving for retirement, several Individual Retirement Account (IRA) options offer distinct benefits:
1. SEP IRA (Simplified Employee Pension):
• Contribution Limits: For 2024, you can contribute up to 25% of your net earnings from self-employment, with a maximum limit of $69,000.
• Tax Benefits: Contributions are tax-deductible, lowering your taxable income for the year.
• Suitability: Ideal for sole proprietors with higher earnings seeking substantial tax deductions.
2. SIMPLE IRA (Savings Incentive Match Plan for Employees):
• Contribution Limits: In 2024, you can contribute up to $16,000, with an additional catch-up contribution of $3,500 if you’re 50 or older.
• Employer Contributions: As a sole proprietor, you’re considered both employer and employee, allowing you to make additional contributions.
• Tax Benefits: Both employee and employer contributions are tax-deductible.
• Suitability: Beneficial for those seeking moderate contributions with simpler administrative requirements.
3. Solo 401(k):
• Contribution Limits: For 2024, you can contribute up to $23,000 as an employee, plus up to 25% of net earnings as an employer, with a total limit of $69,000.
• Tax Benefits: Contributions are tax-deductible, reducing taxable income.
• Suitability: Suitable for sole proprietors aiming for higher contribution limits and greater flexibility.
4. Traditional IRA:
• Contribution Limits: For 2024, you can contribute up to $7,000, or $8,000 if you’re 50 or older.
• Tax Benefits: Contributions may be tax-deductible, depending on your income and participation in other retirement plans.
• Suitability: Appropriate for those seeking straightforward retirement savings with lower contribution limits.
Considerations:
• Income Level: Higher earners may benefit more from SEP IRAs or Solo 401(k)s due to higher contribution limits.
• Administrative Complexity: SEP and SIMPLE IRAs are easier to set up and maintain compared to Solo 401(k)s.
• Future Plans: If you plan to hire employees, consider how each plan accommodates additional participants.
Consulting with a tax professional or financial advisor can help determine the most suitable option based on your specific financial situation and retirement goals.