Firefighter and his Solo 401(K)

4 Reasons a Firefighter Might Need a Solo 401(K)

Due to the nature of their shift work, it is fairly common for firefighters to have side gigs.

Having the responsibility of owning and running your own business or working for yourself can be complex and time-consuming. This is especially true when you’re a firefighter as well. Choosing to set up a Solo 401(K) could be the perfect way to set aside a little nest egg for yourself and your loved ones.

Here are 3 reasons why having a Solo 401(K) is a good idea for firefighters with an entrepreneurial spirit:

1. Greater Contribution Limits

Most retirement accounts have restrictions as to how much you can plug into them on a yearly basis, but the Solo has an overall much higher limit, due to the ability to put in as both ’employer’ and ’employee’, whereas in most other retirement plans you can only put in as an ’employee’. This fact grants you to put in $61,000 per annum. On the other hand, an employer-sponsored 401(k) plan allows you to contribute only $20,500 a year, while an IRA permits only $6,000 yearly. The difference is striking.

CATCH UP CONTRIBUTIONS

Upon turning 50 years of age you are able to sock more money into each of the aforementioned retirement plans. The Solo 401(K) and the regular 401(K) don’t differ from each other; both allow an extra $6,500 to be put in each year. A traditional IRA allows for an extra thousand dollars only. 

The table below neatly clarifies the maximum dollar amounts you can contribute to each retirement plan.

Maximum Yearly Contributions
Under 50
50 +
Solo 401(K)
$61,000
$67,500
401(K)
$20,500
$27,000
IRA
$6,000
$7,000

NOTE: SEP IRA VS SOLO 401(K)​

The SEP IRA is often hailed as the superior IRA for Sole Proprietors. But is it the best? The Solo 401(K) allows for greater contributions and contribution flexibility due to the ability to put into it as both ’employer’ and ’employee’, as stated above. This allows you to max out your contributions with a lower overall income than the SEP IRA, which only allows 25% of profits to be contributed and only as the ’employer’. Call for further details.

2. Roth Contributions

One of the biggest advantages you get from having a Solo 401(K) account is the ability to add significant contributions to a Roth account. Just like other Roth accounts, you make contributions from income that has already been taxed. This means that instead of getting an upfront tax break for the year you made the contributions, any withdrawals from a Roth solo 401(K) made after age 59 ½ are tax free. Note that this only applies as long as you make the withdrawals at least five years after you began making contributions.

Essentially, this allows you to choose when you pay taxes. A traditional 401(K) usually means a large, and sometimes unexpected, tax burden upon reaching retirement. If you believe that you will be in a higher tax bracket once you reach retirement age, it may make sense to pay taxes now through Roth contributions, therefore reducing your overall lifetime tax bill. This is, of course, contingent upon your overall goals and unique financial situation – your financial planner can advise you as to the ideal monetary proportion to go into each type of plan via Tax Optimization Strategies. 

3. Additional Asset Protection

In addition to standard asset insurance, having a Solo 401(K) is another way you can ensure and protect your assets. Not many are aware of this, but Solo 401(K) plans offer better bankruptcy protection than any other retirement account, including the IRA!

Solo 401(K) accounts are separate from your standard bank and retirement accounts. This means that your account is protected against creditors. If you fall on hard times, you can rest assured that the money you have stored in your Solo 401(K) account is untouchable.

In conclusion

Having a Solo 401(K) account could be excellent for your firefighter side hustle. Setting up an account is relatively straightforward. We will be happy to explain how your funds and contributions will expand over time and help ensure that you receive the maximum output.

Please feel free to click the link below and schedule a meeting.

Get a FREE Solo 401(K) 2-Pager for FireFighters

Simply submit your name and email to receive a PDF straight to your inbox.

"*" indicates required fields

Name*
This field is for validation purposes and should be left unchanged.
 *We protect your data and HATE spam.
 

Choose your advisor

Dan DiLascia

Sean Koscho

Get a FREE Solo 401(K) Guide

Simply submit your name and email to receive a PDF straight to your inbox.

"*" indicates required fields

Name*
This field is for validation purposes and should be left unchanged.
 *We protect your data and HATE spam.
 

Get a FREE Roth 457 Guide!

Simply submit your name and email to receive a PDF straight to your inbox.

"*" indicates required fields

Name*
This field is for validation purposes and should be left unchanged.
 *We protect your data and HATE spam.
 

Get a FREE Roth 401(K) Guide

Simply submit your name and email to receive a PDF straight to your inbox.

"*" indicates required fields

Name*
This field is for validation purposes and should be left unchanged.
 *We protect your data and HATE spam.
 

Get a FREE copy of Divorce the IRS

If you would like to request a physical copy of Divorce the IRS, please fill out the form below.

"*" indicates required fields

Name*
Address*
This field is for validation purposes and should be left unchanged.
 *This book is most suitable for households with $250K or more in investable assets.
 

OOPS!

You’ve stumbled across an element that isn’t quite ready for the web yet. We’re working on a lot of new features so stay tuned.

-The Base Wealth Team