A Solo 401(k) Is Smarter

ball of money

When I exited my magazine-editing job a few months ago to start a business as an editorial consultant, I knew the standard advice was to roll over my 401k into an IRA immediately. After talking with a few money-savvy friends, I opted to call Vanguard because they don’t charge fees for rollovers. But when I spoke with the charming advisor in concierge services there, I was shocked to learn that the max I could contribute would be $6,500 in 2013.


Well, that was a huge difference from the $17,000 I’d been funneling into my 401k at my job—not to mention the matching funds I’d been getting from my employer. I didn’t want to see my hard-won nest egg stagnate, especially now that I’m in my 40s, edging ever closer to retirement. So rather than thinking, Well, I guess that’s just how it is, I pushed back: “I’d like to contribute more than $6,500 a year. Are there any other options?” That’s when I learned about something called an Individual 401k for small businesses. All I had to do was get myself a government tax ID number, fill out a few forms, and I was on my way to opening a 401k that would let me contribute up to $17,500 a year.


Also, as both employer and employee, I can essentially provide my own matching funds and put in an additional 25 percent of my earnings—for a max of $51,000 in 2013. With my account, there are no set-up fees, and the only maintenance fee is $20 per fund per year (which is waived, depending on your balance). Fees vary depending on the provider, so be sure to ask.


I won’t be able to contribute that much until I get my business up and running. But I’m glad that I was proactive and pushed for a better financial option—that will hugely pay off down the line.


I feel proud of that. Like a real businesswoman, in fact.

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