By: Jeremy Skoglund, VP Trust Officer

If one of the benefits for a business having a 401(k) plan is to help retain employees, why would you, as a self-employed individual need to worry about having a 401(k)? There are a couple of reasons that may convince you it’s a good option both for your business and for you personally.

Tax Breaks
As a business, you are also eligible for certain tax breaks. If your business is incorporated, you can count contributions as a business expense. If you are not incorporated, you may be able to deduct contributions from your income.

You can contribute way more than your friends who have a 401(k) through their employer. The reason for this is because you can contribute as the employee and also as the employer. As an employee, your contribution amount has the same limits as an average 401(k) – $19,000 this year or $25,000 if you are over 50 years old.

As the employer, you can make contributions up to 25% of your compensation, depending on whether you are incorporated or not. The maximum you can have going to your 401(k) with both of these contributions is $56,000 or $62,000 if you are over 50 years old. This is a great advantage of being self-employed, especially if you are making enough money to reach these limits.

Discuss your options with your Tax Advisor to come up with the best approach for your business. We can also help you talk through your options and help you set up your 401(k).