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Do you have an individual 401(k)? – Working Words

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Do you have an individual 401(k)?

Important information for small business owners — whether your business is your full time occupation or something you do on the side.

If you are your business’s only employee (or, if your business employs only you and your spouse), you can set up an individual 401(k) — and contribute as much as $47,0000 in 2009. (Your contribution limits are based on the overall IRS limit as well as your income from the business — you can contribute up to 100% of the salary you’re paid, plus the company can contribute a percentage of your salary as well.)

Besides the obvious — an individual 401(k) is an incredible tool for catching up on savings, and for minimizing taxes — there are specific advantages to small business owners to shifting their retirement savings to this type of account. For entrepreneurs used to high degrees of control, the “checkbook control” you get from a solo 401(k) is highly appealing. You can invest in “alternatives” like real estate and mortgage notes without hassling with a custodian.

Perhaps most useful in the current economic environment — you can even take a loan against your own 401(k). If you’ve been considering tapping your IRA funds to cover a cash flow crunch in your business, this tool alone can save thousands in penalties, plus permit you to replace any funds lent to keep your overall retirement planning on track. (Learn more about this in a recent Forbes article, “Coming up with cash in a pinch.”)


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