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As more people choose to make a living as a freelance professional, alternatives to employer sponsored retirement and investment plans have developed. Since 2001, it has been possible for this growing sector of the work force to create a self-employed 401(k) plan. Serving as a means of building a nest egg for the future, the solo 410(k) plan provides all the advantages of group plans, plus a few other incentives.
Self-employed 401(k) plans are characterized by the allowance of higher contribution limits than is found with many employer sponsored retirement plans. This feature of the self-employed 401(k) plan allows the freelance professional to divert extra funds directly into the plan, growing the retirement fund quickly in times of prosperity.
At the same time, the self-employed 410(k) plan allows the individual to determine how much or how little to contribute in a given calendar year. This can be important for persons who work as independent contractors, since generated revenue from work projects vary from plentiful to minimal during the course of the year. Thus, it is possible to contribute less to the self-employed 401(k) plan during years that are somewhat tight financially, and divert larger amounts of funds to the plan during periods when income far exceeds expenses.
One of the great things about a self-employed 401(k) is that the process for setting up this type of retirement plan is very simple. The administrative requirements are streamlined, so it takes very little time to manage the fund. Many providers of a self-employed 401(k) plan also provide online access, which makes the process of adding funds and tracking the current status of the assets an easy process.
Like many retirement plans, it is possible to obtain funds in a crisis situation by exercising the loan option that is part of the self-employed 401(k) plan. Generally, there are some limits on the loan amount. Most plans require that the loan be less than half of the current account balance, or under a fixed amount that is specified in the plan contract. Loans made against the plan carry no penalties or interest, as long as the loan is repaid according to terms. However, very stiff rates of interest or significant penalties may be incurred if the loan is not repaid on time.
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