Business Owners Archives - Integrated Retirement Advisors

The Solo 401k


  1. The solo 401k is ideally suited for successful Millennials setting themselves up as single-employee businesses making enough money in the “gig” economy to start thinking seriously about tax-advantaged saving for retirement. The 2019 maximum deductible contribution of $56,000, possibly doubled by a contribution for an eligible spouse working in the business—no matter the ages of the plan participants—can be a powerful incentive to get serious about the long-term future.    Of course, the solo 401k can be useful for older GenXers too and even for Baby Boomers who have become consultants to the corporations and/or industries that have laid them off as full-time W2 employees.


  1. Whenever the right fact pattern presents, Integrated Retirement Advisors quick to recommend this plan. The key is for the business owner to be making enough money to take advantage of the plan’s generous capacity and low-cost simplicity. Another determinant is the expectation of doing so in future without the need to hire employees.  Once employees (other than a spouse) enter the picture, the solo 401k plan must be converted to a standard employer plan that gets more complicated (due to non-discrimination testing) and more expensive (due to additional operating and administrative costs).  Of course, every contribution to a solo plan can incent and boost a retirement investing effort, so even setting one up for a few years while a business scales up can be very advantageous.


  1. Limited access to the plan’s accumulating account is probably the greatest drawback to this arrangement.  Like any tax-qualified plan, once a contribution is made access to the funds is limited by IRS regulations.   Withdrawals before age 59-1/2 are subject to income tax plus a 10% premature withdrawal penalty.  Solo plan loans of up to $50,000 can be taken, but they’re tax-inefficient and must be repaid with interest over five years.  If they default, they too can generate early withdrawal penalties.


  1. In terms of investment, the more diversified and flexible the platform, the better. Providers come in a variety of shapes and sizes.  The big brokerages offer prototype plans that may limit their offerings to stocks, bonds, funds and ETFs.  Some securities boutiques offer self-directed plans that provide access to real estate, precious metals and other alternatives, including bitcoin!


  1. We make it a point to inform clients that 401k plans, including the Solo variety, permit insurance contracts as investments. Today’s fixed index annuity (FIA) can provide market-linked growth potential together with downside protection, a combination that lends itself well to long-term compounding. Integrated with securities, these contracts can help de-risk a retirement portfolio without necessarily imposing an unbearable opportunity cost.  Roger Ibbotson’s recent research suggests they’re worth considering as a bond alternative.


  1. Life insurance is also a permissible alternative in a Solo 401k plan. When permanent coverage may be needed for personal and/or business reasons, funding it pre-tax in a 401k plan can prove very cost-efficient.  Given enough time, index-linked life contracts can provide temporary protection together with investment growth. Once the protection feature is no longer needed, the contract can be surrendered for its cash value that is then added to the account’s aggregate holdings.

Retirement Investing For Entrepreneurs


Entrepreneurs are risk takers by nature; most swing for the fences in their chosen enterprises.  Most fail once or twice before succeeding.  Many businesses fail even AFTER having succeeded.

Retirement savings need to be approached differently. 

  1. The retirement nest egg should be fed starting as early as possible and should be focused on steady growth with downside protection.
  2. If started early enough and insulated from losses, even 10k per year can compound into a significant portfolio over time.
  3. Not sufficiently appreciated, life insurance is an ideal retirement tool for entrepreneurs under 50. Even older under certain circumstances.
  4. Investment-oriented life insurance compounds with doubled-up vigor by benefitting from the tax-avoidance features it offers; all internal growth is tax-deferred.
  5. In addition, life insurance offers tax-free access to gains in the form of policy loans, usually of the “wash” variety. This turns a life policy into an unlimited Roth IRA.
  6. The Fixed Index Universal Life (FIUL) policy offers the greatest growth potential; some varieties offer extraordinary loan features.
  7. Based on today’s tax regime, nothing beats the retirement funding potential of this financial instrument; what’s more, being tax-free on the payout side takes the recipient off the grid. The cash flow from this source is non-reportable.
  8. The instrument also serves the traditional family protection needs met by life insurance.
  9. It can also serve business needs: funding deferred compensation arrangements; buy-sell agreements with partners and co-shareholders; and key-person coverage to protect the on-going viability and on-going-concern value of an enterprise.
  10. Thus, retirement planning should be built into the wide array of planning needs unique to entrepreneurial endeavor.


Ask us for examples and stories from 30 years’ experience working with small business owners available.