Retirement Planning/Solo 401K

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Question
I had sent the following to another expert but unfortunately he could not answer. My wife and I are 71 years old and can no longer put money into our IRA's and take the deduction. My wife is a small business owner, she is a single member LLC taxed as an S-Corp she does not have employees. Can she set up a Solo 401K and fund it out of money she has in a savings account, or does the money have to be based on her salary? She does pay herself a salary of $800.00 a month. The last question I guess is should she even consider setting up a Solo 401K if it has no tax advantage. Thanking you in advance.

Answer
Dear David,

It would be pointless to be putting anything into a Qualified Account, since it and its earnings will not avoid taxation. At any age Qualified contributions must be backed by earned income, so drawing funds from a savings account (unless justified by earnings) will not qualify.

A more productive strategy would be to acquire a Ten Pay life insurance policy that is offered by a policy-owner owned life insurance company, such as Guardian Life or Ohio National Life. Companies of this type reward their policyholders with refund of unneeded premiums. Usually these buy Paid-Up Additional Insurance.

An example from one of these companies: $6,000 per year establishes immediately upon delivery a benefit amount of $65,000. By the tenth anniversary a current projection shows a Face Amount of $75,000. This would represent a 4% compounded annual gain on the $60,000 paid in to the policy in the event of death. This benefit would be free of income taxes.

Dividends (the refunds) are not guaranteed, but companies offering them have been doing so for over one hundred years.

Willard R. Brumbaugh, LUTCF
CA License 0374776
(888) 792-2379

Retirement Planning

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Willard R. Brumbaugh, LUTCF

Expertise

I have answered many questions regarding 401ks, IRAs and annuities as well as life insurance. I have been counselling against most Qualified Plans since 1994.

Experience

Ranked in the top 5 in retirement catagories at Askme.com most of its last 2 1/2 years. Organizations I belong to: National Association of Insurance and Financial Advisors-California
Inland Empire Estate Planning Council


Education/Credentials
Life Underwriters Training Council Fellow

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