Kick Start 2015 with a Successful Solo 401(k) Plan

Investing
You can trust that we maintain strict editorial integrity in our writing and assessments; however, we receive compensation when you click on links to products from our partners and get approved. Here's how we make money.

By Dmitriy Fomichenko

Learn more about Dmitriy on NerdWallet’s Ask an Advisor

If you set up your Solo 401(k) plan, also known as an Individual 401(k), by Dec. 31, 2014, your plan is qualified to receive contributions for 2014. If not, the start of the year is also a good time to start your retirement planning. Remember, though, that setting up the plan is only the first step. There’s plenty more to do to make sure that 2015 starts off on the right foot so you can get the most out of your self-employed 401(k) plan.

Make the most of 2014 contribution allowance

By now if you haven’t set up a Solo 401(k) plan, chances are you’ve missed an opportunity to make contribution for the 2014 financial year. But if the plan was already set up before Dec. 31, there is still time to contribute. Generally, the profit-sharing and salary deferral contribution can be made until the tax-filing deadline, which depends on what type of business entity you are operating. Check with your tax consultant or plan provider for more details on these contribution guidelines.

Plan ahead for 2015

Once you are set with your 2014 contribution, it’s time to plan ahead for this year. The Solo 401(k) plan allows self-employed business owners a generous contribution limit. In 2015, plan holders can contribute as much as $53,000. For those who are over 50 years old, a catch-up contribution of $6,000 is also allowed, lifting the total limit to $59,000.

This amount can help you grow your retirement funds fast and efficiently. However, to take advantage of this high contribution limit, you need to plan ahead to make sure these contributions make sense with your current financial plan and budget. Therefore, review your financials, set a goal for the year and set money aside for these contribution amounts.

Review your investment strategy

To make sure 2015 will be a financially successful year, it’s time to review your portfolio, if you haven’t done so already. A successful retirement plan is not only about saving more, but also about wise investment decisions. Are your investments performing well? Have they reached their maximum earning potentials?

One unique feature of a truly self-directed Solo 401(k) plan is that it allows alternative investments, allowing you to diversify. Perhaps you would like to add precious metals to guard against inflation or a sudden market collapse. Or maybe real estate is more in line with your expertise. Even if you are only interested in the stock market, make sure your portfolio is well diversified and invested wisely.

The beginning of a new year often allows us to review our progress and set new goals. Hopefully, financial security is on your list. Get an early start on your retirement planning, and your future self will definitely thank you.