Each the Setting Each Group Up for Retirement Enhancement (Safe) Act and the Safe 2.0 Act made beneficial adjustments to make saving for retirement simpler and extra engaging for taxpayers. Safe Act 2.0 additionally contained some provisions designed to “repair” points created by the unique Safe Act.

A kind of points was a brand new rule that allowed enterprise house owners to determine solo 401(ok)s retroactively — however solely permitted employer contributions after the tip of the calendar yr. This limitation made it troublesome for small-business house owners who have been interested in the construction, but wouldn’t make sure about their earnings for the plan yr till early within the subsequent yr.

Safe Act 2.0 mounted this “glitch” to permit retroactive worker deferrals. enterprise house owners shouldn’t wait to behave and needs to be suggested in regards to the worth of those retirement financial savings accounts at present.

Solo 401(ok)s: The Fundamentals

A solo 401(ok) is a 401(ok) plan that covers solely the enterprise proprietor and their partner. In most methods, the solo 401(ok) operates in the identical method as a conventional 401(ok) — that means that contributions are made on a pre-tax foundation and topic to unusual revenue taxes when withdrawn throughout retirement.

One key benefit of a solo 401(ok) plan is that the employer-participant will not be required to carry out nondiscrimination testing as a result of there aren’t any staff to contemplate, whether or not non-highly compensated or in any other case. Submitting necessities are additionally minimal — if the plan’s belongings are a minimum of $250,000 at year-end, the plan is required to file an annual report on Kind 5500-EZ.

Solo 401(ok)s additionally enable the proprietor to make bigger contributions every year. For 2022, the owner-employee can contribute as much as $20,500 (with a $6,500 catch-up contribution, for a complete restrict of $27,000 if the participant is 50 or older) in pre-tax {dollars} per yr as an worker. The contribution restrict will increase to $22,500 with a $7,500 catch-up contribution restrict for 2023.

Nonetheless, the enterprise proprietor can be permitted to contribute to the solo 401(ok) plan as employer (for a complete employer-employee contribution restrict of $61,000 in 2022 (or $67,500 for these ages 50 and older). The restrict will increase to $66,000 in 2023 with a $7,500 catch-up contribution restrict.