JPMorgan Chase has launched a solo 401(k) solution for entrepreneurs and self-employed individuals with no full-time employees.
“The launch of the solo 401(k) marks a significant milestone in our commitment to enhance retirement planning for solo entrepreneurs,” said Steve Rubino, head of retirement at J.P. Morgan Asset Management, in a statement, adding that the firm is “excited” to help solo entrepreneurs and small business better secure their financial futures.
The announcement cites an internal poll showing that 80% of business owners contribute to retirement accounts, with individual 401(k) options preferred by 35%. However, only 44% of business owners are satisfied with their contributions and wish to increase them, according to the poll, highlighting the need for more flexible and high-contribution options.
To that end, the solo 401(k) structure allows small business owners to save up to $70,000 annually (an amount that is indexed for inflation), with higher catch-up contributions permitted for those over age 50. An additional $70,000 in savings (plus possible catch-up contributions) is permitted for a spouse who participates in and earns compensation from the business. Both pre-tax and Roth contributions are permitted.
John McCourt, head of client relationships at Chase for Business, emphasized the importance of administrative simplicity for business-owner clients, suggesting the new retirement solution provides “a flexible way to save for the future while growing their business, wherever they may be in their retirement planning journey.”
When the plan only covers a business owner and their spouse, the IRS waives much of the red tape that typical 401(k) sponsors must navigate to qualify for tax advantages. For example, the business owner isn't required to perform nondiscrimination testing because there are no employees to protect (non-highly compensated or otherwise).
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