Roth Solo 401k: Tax free earnings for small business owners

Small business owners can make the most of their retirement plans with Roth contributions

Retirement planning is one of the many items on the to-do list of a business owner. Setting up a retirement plan not only helps business owners save for their future, but also allows them to take advantage of many tax benefits.

The Solo 401k plan is one of the most popular options. Designed for individuals, the Solo 401k can be set up by business owners with no full-time employee. The plan is a simple and low-cost solution, comparing to traditional 401k plans.

With the Solo 401k small business solution, plan owners can contribute up to $59,000 a year in 2015. That effectively lowers their taxable income by up to $59,000 and cut the tax bills by thousands of dollars.

All gains from investing the fund are also tax-deferred until the time of withdrawal. This allows business owners to re-invest their profit and grow a larger fund.

The Solo 401k plan with checkbook control gives small business owners a lot of flexibility. What many business owners did not realize is that they can potentially save even more on taxes with a Roth Solo 401k account.

Unlike the regular Solo 401k small business plan, the Roth Solo 401k accepts after-tax contributions. The tax benefit of a Roth account comes in the form of tax-free investment.

With a regular Solo 401k plan, the contributions and earnings will be tax at the time of withdrawal. With a Roth account, contributions are taxed up front, but there will be no tax at retirement age, even on the investment earnings.

The Roth Solo 401k account can be more beneficial for small business owners who expect to be in a higher tax bracket in the future. It can also save on taxes if the plan is expected to earn high returns. The Solo 401k plan is allowed to invest in alternative assets, including real estate and private lending. Therefore, many plan owners expect higher returns than with traditional plans.

While a Roth IRA has to be set up separately, each Solo 401k small business plan can come with a Roth account. Plan owners can designate their contributions into the after-tax account without any extra steps or paperwork to complete.

Sense Financial is California's leading provider of retirement accounts with "Checkbook Control": the Solo 401k and the Checkbook IRA. Over the years, they have assisted hundreds of clients to obtain checkbook control over their retirement accounts while providing them with the ability to invest in virtually any investment class, including real estate, private lending, mortgage notes and much more without the need for custodian approval.

To learn more about Solo 401k, please visit sensefinancial.com.