Why you should consider a Solo 401k if you are Self Employed

Solo 401k if Self EmployedBy Toma Franklin, Staff Writer

If you own your own business, you are undoubtedly aware that small-business retirement plans, like SEP and Keogh can sometimes leave much to be desired. The good news is that the Solo 401K is making a financial comeback in a big way, and provides enterprising entrepreneurs like you with a wider variety of retirement saving options.

Solo 401K Options: New and Improved

Employees at Enron thought that they were being smart by investing much of their 401k earnings back into the company, but they were in for a shock when shares suddenly plummeted down to less than a dollar each. Remember, your 401k is your nest egg for the future, and should be invested carefully and wisely.

How Much Should You Invest in Your Company?

If you purchase your 401k plan through your insurance company, it may be packaged as an annuity, particularly if you are a teacher, professor, or employed by a non-profit. These plans are more expensive than the average 401k plan, since the insurance company typically will require you to pay an additional fee in addition to the expense ratio that you are already required to pay. Although it must be said that the majority of insurance companies simply would not be able to compete with other 401k providers if they did not charge these fees, critics point out that the extra charges are often covertly taken out of your total investment return. The only way to know if you are being charged, in most cases, is to carefully review your investment prospectus.

Very Few Companies Offer the Roth IRA 401k Option

Why? The reasons vary by company, but are more than likely due to the fact that Roth IRA's were not originally meant to be permanent options for employees. With a Roth IRA, as opposed to a traditional 401k investment plan, you pay the taxes on future withdrawals before you make them, allowing you to withdraw on a tax-free basis in the future. If your company does not offer the Roth IRA option, and you would like them to do so, don't hesitate to approach the benefits department to ask why and how such an option might be implemented at a later date. Remember-it's your money, and your future on the line.

Value Funds and Company Stock Options are Not Necessarily the Best Choice

It may seem like a wise, and loyal investment to put a good portion of your 401k in company stock or value funds, but this is not always the case. Younger employees may be tempted to invest heavily in these areas, and most financial planners agree that this is a decision they will come to regret later. Company stock investing can lead to disaster if your company goes belly-up, and a large proportion of your 401k is invested in the stock. Likewise, value funds, although they do protect your savings, generate much less of a return than stock and bond funds generally do, and should be invested in with careful consideration

Investing in Your 401k: Get Informed, Stay Informed

Investment choices made today can dramatically shape your financial outlook in the future. Be sure to educate yourself in all aspects and options of your 401k plan, and meet with your personal financial planner on a regular basis to determine the best course of investment action for you.