If you have no employees other than a spouse, you can take advantage of a powerful retirement plan known variously as an individual 401(k), a solo 401(k) or an independent 401(k). The beauty of a solo 401(k) is that you don't have to earn as much as you do with other retirement plans to qualify for the maximum tax-deductible contribution.
| Row 0 - Cell 0 | Fresh Ideas for Retiring Rich |
| Row 1 - Cell 0 | How Much is Enough? |
| Row 2 - Cell 0 | Am I Saving Enough for Retirement? |
You can contribute up to $15,000 this year as an employee. Then, your business can kick in another 20% of your self-employment income (defined as total business income minus half of your self-employment tax) -- or 25% of your compensation if your business is incorporated -- for a combined maximum contribution of $44,000 in 2006. If you're 50 or older, you can sock away up to $49,000.
Jonathan Sargent, who runs his own motion design and animation business in Atlanta, has been using a solo 401(k) since it first debuted in 2002. He jumped at the chance to sign up for the Single(k) from Decimal, a financial-services provider. "Saving the most money possible is my A-number-one priority, and the Single(k) raised the roof," says Sargent, 38. Before that, he used a SEP IRA, which allows you to kick in only 20% of your self-employment income without the $15,000 employee-contribution sweetener.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If your business, like Sargent's, is incorporated, you need a gross income of just $116,000 to contribute the full $44,000 this year. Owners of unincorporated businesses need to earn $153,000 to max out. With other types of retirement plans for small businesses, you would need to earn at least $176,000 in an incorporated business or $229,000 in an unincorporated business to save the full $44,000 this year.
Go back to our main list for more problems solved
Go to our slide show for other helpful tips
-
457 Plan Contribution Limits for 2025Retirement plans There are higher 457 plan contribution limits for state and local government workers in 2025 than in 2024.
-
Medicare Basics: 11 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
Six of the Worst Assets to Inheritinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
-
SEP IRA Contribution Limits for 2024 and 2025SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $69,000 in 2024 and $70,000 in 2025..
-
Roth IRA Contribution Limits for 2024 and 2025Roth IRAs Roth IRA contribution limits have gone up. Here's what you need to know.
-
SIMPLE IRA Contribution Limits for 2024 and 2025simple IRA The SIMPLE IRA contribution limit increased by $500 for 2025. Workers at small businesses can contribute up to $16,500 or $20,000 if 50 or over and $21,750 if 60-63.
-
457 Contribution Limits for 2024
retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
-
Roth 401(k) Contribution Limits for 2025retirement plans The Roth 401(k) contribution limit for 2024 is increasing, and workers who are 50 and older can save even more.
