What Is an SBO 401(k)?

A SBO 401(k) is a 澳洲幸运5官方开奖结果体彩网:tax-deferred, government-registered retirement savings plan that is specially designed for small business owners (SBOs). Eligible participants for a SBO 401(k) are businesses that employ the business's owners and their spouses. The business must not have any other eligible employees. It is also known as an 澳洲幸运5官方开奖结果体彩网:independent 401(k).

Understanding an SBO 401(k)

A SBO 401(k) provides self-employed small business owners the opportunity to participate in a 澳🍸洲幸运5官方开奖结果体彩网:tax-deferred retirement savings plan. These types of savingsꦚ plans may be either self-directed or professionally managed.

As with standard 401(k) plans, the contribution limit for 2023 is $22,500 (increasing to $23,000 in 2024). Additionally, catch-up contributions of up to $7,500 in both 2023 and 2024 are allowed for those age 50 and over. Contributions made to the 401(k) are tax deductible.

The SBO 401(k) offers many of the same features as a SEP IRA, but an independent 401(k) can be cheaper to establish and maintain, and loans are often allowed against an i🅷ndependent 401(k). The major drawback to the indepenꦗdent 401(k) is that no outside employees can be hired.

SBO 401(k) Versions

There are two versions of the individual 401(k) plan: a traditional version and a Roth version. With the traditional version, your tax-deferred money is only taxed when it is withdrawn; the Roth version involves putting away after-tax money and allowing it to grow tax-free with no taxes owed on withdrawals.

You can use finan🌄cial calculators to help determine the best option for you between the twoဣ versions of the individual 401(k) plan. It is also possible to opt for both and divide contributions between the two plans.

The amount you can contribute to these plans is appealing. "The highlight of the 澳洲幸运5官方开奖结果体彩网:Self-Employed 401(k) is the ability to contribute to the plan in two ways," notes investment giant Fidelity. Here's how these two contribution routes work:

• As an employee: For 2023, you can make deferrals of your salary up to $22,500, or $30,000 if you're age 50 or over. For 2024, these numbers are $23,000 and $30,500.
• As an employer: In addition to your annual employee contribution, you can also contribute up to 25% of your compensation to your SBO 401(k).

Note that the maximum yearly contribution from both sources is $66,000 for 2023 and $69,000 for 2024. If you're 50 or older you can make the catch up contribution which increases these limits by $7,500.

In addition, notes Fidelity, "If your business is not 澳洲幸运5官方开奖结果体彩网:incorporated, you can generally deduct contributions for yourself from your personal income. If your business is incorporated, you can count the contributions as a business expense."