How My401k works
Being an independent contractor is difficult. Besides the challenges of running your own business – accounting, marketing, etc, are the stresses to your personal finances. You have to pay for your own health care, pay social security and taxes yourself, (the “Self-Employment tax), and pay for other business insurance.
However, when taking time to prepare a retirement plan, the self-employed actually have an incredible, although not well-known, advantage. By establishing an individual 401k, you can save 3 times as much money for retirement, $57,000 per year ($63,000 if over 50 years old) as many employed individuals at your same income can.
In fact, if you’re married, your business may be able to save you $114,000-126,000 for retirement between the two of you.
You’ll also have the freedom to invest in better funds, at lower expenses, than more company 401Ks (and, in fact, most IRAs).
What My401k Does
You can go to Vanguard, Fidelity, or TD Ameritrade today to establish an individual 401k for free. They will let you contribute $18,500 of your self-employment income, plus an additional 20% of that income, up to $37,000 this year.
To maximize the possible contribution through these sites, you’ll need to earn well over $160,000 in self-employment income (more considering deductions and pass-through income). And if married and contributing to two 401k plans, you’d have to earn well over $320,000 to maximize what you can save.
However, if you’re not earning those amounts but want to save more, there’s a trick: the “Mega Backdoor 401k“.
– You can fully contribute $57,000-$124,000 of your income with less restriction.
– You’ll need to set up a self-directed 401k.
That second part is tricky. Setting up such a 401k can be expensive and time-consuming. Many lose over 40 hours getting caught in paperwork, as it’s easy to make mistakes in the process.
My401k removes the hassle, making this all possible in minutes, not days. By answering a few questions, we’ll have a CPA set up your self-directed plan. We’ll then automate the challenging steps to register with a brokerage and begin contributing your 401k.
All of this is possible, at a price comparable to related services.