A recently added self employed 401k plan option is the Single-Participant 401k plan, also called a Solo 401k. The Solo 401k was created by the Economic Growth and Tax Reconciliation Act of 2001, and is quite similar to a traditional 401k plan that would be offered by a corporation or other large business. However, the Solo 401k plan is geared for a self-employed individual and requires less administrative upkeep compared to the corporate version of the 401k and used to be only for someone who worked for a corporation, but basically, no more. Small business owners can now open self employed 401k plans and shelter much of their hard earned dollars instead of any other kind of self-employment retirement account.

The self employed 401k plan, often called an individual plan, is available to businesses that have no other employees beyond an owner and a spouse, although some partnerships can qualify. This means sole business owners of mom and pop companies, or even people that work for someone else and have a side business as well can look into this option. These have become the latest plan and many investment firms are offering them to their clients above other plans.

The self employed 401k plan big advantage? Creating the opportunity to set aside much needed tax-sheltered retirement money than allowed by other self-employed retirement options. But remember, it’s not just the extra money you can shelter from taxes that makes the plan so appealing. It’s also the account’s diversity and flexibility. Self employed 401k plan accounts also offer new investment options and loan opportunities. Not only does this relieve much headache during tax season, a business owner can focus more on other aspects of their business needs besides tax issues. The administrative work is minimal and the associate paperwork is easy to file and maintain. Members are not required to contribute to their Solo 401(k) account. Immediately your contributions are 100% invested.

Part time workers that work less than 1,000 hours per year are excluded. If you have full-time employees, you will definitely need to select another self-employed retirement plan. With the self employed 401k plan, depending on your income, gives you the opportunity to put away more of your income than would the SEP IRA, which has the same contribution limit ($46,000 in 2008). Like the SEP IRA, Solo 401k plan owners can contribute 25% of their compensation as profit sharing. The big difference, though, is that Solo 401k plan owners can also contribute up to the first $15,500 as tax deferred contributions. So unless you can max out the entire $46,000 with a SEP IRA, the Solo 401k will allow you to contribute a little more money toward retirement.

A self employed 401k plan obviously offers a better deal to small business owners and those are who self-employed. The option to set aside retirement money, have it be tax sheltered, and cut down on paper work is obviously a plus to any business owner and definitely worth looking in to.