The 401k: It’s not just for corporate employees anymore!

OK, so, y’all know how I am. I may not be working-working, but I am physically incapable of just doing the Sally Homemaker routine.

It is definitely a character flaw.

So I’m bashing around a bunch of ideas for a home-based something-or-other. I’ve got three main ideas that are equally appealing, and I’m just letting them stew right now while I get through summer. Three of my four kids will be in school-school come mid-August, and I’m contemplating putting Captain Adventure into a morning preschool as well. Maybe. We’ll see. It all depends on how his speech delay is coming along, and whether or not I can get the boy to acknowledge the existence of the Strange and Magickal Device known as ‘The Potty’.

ANYWAY. Sometime next Fall, I’ll probably be firing up the engines and looking at getting some income of my own flowing again. The kinds of ideas I’m bashing around are not earth-shattering, “and then I became a bazillionaire and bought this fleet of yachts” kinds of ideas. They’re small. They’re easy to turn on and off. They make money when I have time and inclination, but I can completely disentangle myself in a matter of weeks. I’m projecting, eh, maybe $20,000 a year net from it.

Check this out (full article is here):

Individual 401k Contribution Calculation - for a sole proprietorship, partnership or a LLC taxed as a sole proprietorship

Salary Deferral Contribution

Although the term salary deferral is used, these businesses do not provide a W-2 salary to the business owner. For businesses of this type, the salary deferral contribution is based on net adjusted business profit. Net adjusted business profit is calculated by taking gross self employment income and then subtracting business expenses and then subtracting 1/2 of the self employment tax. In 2007, 100% of net adjusted business profits income up to the maximum of $15,500 or $20,500 if age 50 or older can be contributed in salary deferrals into an Individual 401k.

Allow me to translate: I can earn $20,000 net next year, put it $15,500 into an individual 401k, and pay taxes on how much? How much is taxable this year? Would that be…$4,500?!

Moreover! I can roll my existing retirement funds INTO this deal, and then take a tax-free loan from those funds for business startup expenses without having to worry about traditional loan qualification processes AND!!!! the interest I pay on those loans goes where? Where does it go?

Back into the 401k.

You see why this is exciting to me? Granted, the kinds of things I’m thinking about doing don’t really have high startup costs that would necessitate a loan…but at the same time, it does open a few more doors than I had previously considered.

And $15,500 kicks butt over the paltry $4,000 allowed in an IRA. Gee whiz, what braniac put THAT limitation in place?! Would it kill them to allow $15,500, like in a 401k account?!?! Are you telling me that doing so would be just so shockingly detrimental to the tax base of this great country?

First we kvetch that people aren’t saving enough. THEN we tell them that, unless they are fortunate enough to have a 401k, they aren’t ALLOWED to save enough – not on a tax-deferred basis, anyway.

Stupid. Stupid, stupid, stupid. And you can’t tell me they’d even lose all that much in tax benefits, because most people either are really not fiscally able to make that kind of contribution or emotionally unprepared to make the daily sacrifices necessary to do it.

Me personally, I’d live on peanut butter and jelly sandwiches to do it. It’s freedom, people. When I look at this individual 401k deal and I calculate out what it could do for us, IF I were able to put the full $15,500 into it every year…well. We’re retired at 50 instead of 55. That’s only ten years away.

It gives me something to shoot for with this whole ‘yeah, uh, I think I’d like to do something that brings in a little cash around here’ thing.

And now, my tax deductions are asking for snacks. Hokay. Carry on, people! And if you’re self-employed and haven’t heard of this, look into it. It might be a really good thing for your future fiscal health.