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What to Consider When Setting up a 401k Plan for Small Business

By Dmitriy Fomichenko, President and Founder of Sense Financial


Small business owners often need to look into setting up a retirement plan for themselves. The decision can seem impractical to many business owners, as most people assume that without employee, the plan is inefficient and expensive. However, setting up a 401k plan for small business is still an essential step to ensure financial security in the long term. With the right choice, small business owners can still choose a retirement solutions to fit with their budget and business size. To help you decide on the right retirement plan, consider these factors below:

Plan Eligibility

There are many retirement plans with different eligibility requirements. A traditional IRA, for example, is for any individual, with or without a business. A SEP IRA offers a higher contribution limit, and can include both the employees and employers of the business. A Solo 401k, on the other hand, offers the generous contribution limit but can only cover the self employed business owner and their spouse, without any full time employee. Depending on the size of the business and how much you plan to contribute to your retirement plan, choose one that fits your needs.

Checkbook Control

Large businesses with a traditional 401k often opt out of the self directed option to limit the cost. For small businesses, however, the self directed option can be more affordable, especially for individual accounts such as IRA or Solo 401k.

Note that, however, not all self directed retirement plans are equal. Some self-directed plans give plan owners the choice of investing in non-traditional assets like real estate, but they still need to get approval from a custodian. A truly self directed option will give plan owner Checkbook Control. This means they can write a check to fund their investments without waiting for their custodian’s approval.

With traditional 401k, the self directed option can get complicated pretty quickly. With a small business retirement plan, the self directed option can help small business owners tailor their portfolio to their needs. It also helps them save on custodian costs and transaction fees.

Rules and Regulations

Plan owners who choose to go with a self directed Solo 401k or self directed IRA often have investment opportunities that they want to pursue. The flexibility and control of these small business retirement plans are what plan owners are after.

However, keep in mind that as the plan owner, you are responsible to keep the plan in compliance and abide by all the IRS rules and regulations. Some plan owners want to use their old 401k funds to purchase a house for example. While this is possible, plan owners need to remember that their retirement funds cannot be used to purchase a house that they will live in. All investments should be at an arm’s length. Plan owners and other disqualified persons cannot personally benefit from the plan investments.

Dmitriy Fomichenko is President and Founder of Sense Financial, a leading provider of retirement accounts with "Checkbook Control": the Solo 401k and the Checkbook IRA. To learn more about the Solo 401k plan, please visit sensefinancial.com or email us at info@sensefinancial.com.


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