Hello and

welcome to Moneygirls quick and dirty tips for a richer life.

Today's topic, the Solo 401k. If you're self-employed and didn't pay much

attention to last week's episode on the Roth 401k, now's the time to listen up

because this episode is for you. If you're a sole proprietor or own a business

with no employees other than your spouse, you can create your own Roth 401k and you don't even

have to pester your employer to do it. There's a version of

it just for you. The solo 401k also known as a self-employed or individual 401k

is available to the self-employed and business owners who have no

employees other than their spouse.

It has a Roth option so you can choose to contribute after-tax money and have the earnings on your contributions

grow tax-free.

With the Solo 401k, you can make two types of contributions, salary deferral and profit sharing. In most cases this combination means you can

contribute more with a solo 401k than you could with other types of retirement

plans for the self-employed.

With a solo 401k, the limit on the salary deferral contribution is the same as the 401k contribution

limit.

For 2007, it's $15,500.

And you can contribute up to 20% of your self-employment income,

or up to 25% of your compensation if you're incorporated, up to a maximum of $45,000.

Your total combined maximum contribution to a Solo 401k is also $45,000 or $50,000 if you're age 50 or older.

Here's an example of how it works.

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