401k for Freelance Writers

If you are a tax-paying freelancer, you are considered a sole proprietor. According to the Economic Growth and Tax Relief Reconciliation Act of 2001, sole proprietors can open and contribute to a Self-Employed 401(k) or Solo 401(k) plan. Whether you've been freelancing for years or have just started, this option is available to you.

1) Contributions are tax-deductible.
As a freelancer, you may deduct 100% of contributions on your taxes. However, your Self-Employed 401(k) must be set up before December 31 of the previous year to be eligible for the current year's tax deductions.

2) Contribution limits are higher than other retirement plans.
Tax-deferred contributions may be as much as three times as what is allowed under many other types of retirement plans. Self-employed business owners can contribute the lesser of $42,000 or 100% of total compensation into a Solo 401(k) plan. Self-employed business owners over fifty years of age are allowed an additional $4,000 of contributions annually.

3) Contribution amounts are flexible.
Each year, you can decide how much you want to contribute. You can also decide not to contribute anything at all.

4) Plans are easy to set up and inexpensive to maintain.
Self-employed and Solo plans cost less because there are no expensive administrative costs involved as there are with large plans.

5) Consolidating is convenient.
You can consolidate your IRA's or other retirement plans into your Self-Employed 401(k). If you had an IRA or other 401k plan before you started freelancing, you can roll-over those funds into a Solo 401(k).

6) You can loan yourself tax-free money through your 401k.
Through the Self-Employed 401(k), you will have access to cash via the 401(k) loan option. You can loan yourself up half of your account balance, up to $50,000. This money can be used for anything, and the money is tax-free and penalty-free as long as it is paid back on time.

7) Finding an investment company can be difficult.
As of 2007, there are not a lot of investment companies offering the Self-Employed 401(k) plan. Many of those that do offer it only have limited investment options. However, you can find some great options at investsafe.com.