Solo 401(k)

The self-employed or solo 401(k) affords the opportunity to salt away as much as $54,000 per year, depending on your income. For those over 50, the annual contribution limit is $60,000. And while a solo 401(k) can be a convenient option to ramp up your retirement savings, it still requires a little more effort in terms of administration and making the right choices to optimize your experience.

When you’re considering setting up a solo 401(k), there are plenty of options. Many financial institutions and asset managers provide these plans, but the difference in offerings can be marked.

One of the benefits of a solo 401(k) is the opportunity to self-direct investments. For the more sophisticated investor, this can be particularly meaningful, as he or she is free to invest in any product or asset class. Whether it be stocks and bonds or assets like hedge funds, precious metals or private equity, the account holder has a vast range of choices.

But some institutions limit the investment plan options they make available to institution-directed plans, which allow the retirement investor to purchase only traditional products like equities and mutual funds. If you’re not interested in investing in more exotic asset classes, these financial institutions will likely be able to satisfy your needs in a cost-effective manner. But more sophisticated investors will be better served by open architecture plans that afford the broadest range of choices.

Self-direction offers other benefits as well. The ability to borrow against a solo 401(k) is one of the options that most small business owners appreciate. If you opt for an institution-directed plan, you may find any borrowing plans stymied.