What is a Solo 401k?
More and more investors are realizing that Wall Street doesn’t meet their needs for retirement. People looking for more and better options may come across a special type of self-directed retirement account known as a Solo 401k. But what is a Solo 401k exactly?
A Solo 401k falls under the broad category of self-directed retirement accounts, which also includes self-directed IRAs, checkbook IRAs, gold IRAs and the IRA LLC.
But the Solo 401k beats them all hands down. Everything you can do with a self-directed IRA, you can do better with a Solo 401k.
A Solo 401k is also known as a self-directed 401k, a one-participant 401k or an individual 401k.
It works like the 401k at larger employers, except it is tailored for an individual.
So what is a Solo 401k? Let’s start with what it does better than other self-directed retirement accounts.
A Solo 401k Will Help You By…
• Eliminating the middle man. A Solo 401k needs no custodian. This eliminates unnecessary red tape and hidden fees that can save you thousands every year. You will have direct control and possession of your assets. It even gives you the power to block government confiscation of your retirement funds.
• Maximizing your contribution limits. A Solo 401k allows you to contribute up to $59,000 pre-tax income ($53,000 if under age 50). If your spouse participates, the amount may be as much as double. Compare to IRAs at only $6500 or less.
• Giving you unlimited investment options. No longer are you restricted to the same paper assets as everyone else. Invest in anything legal, including physical precious metals, real estate, private loans, offshore investments and private businesses. And you have even broader access to stocks, bonds, mutual funds, ETFs, options and margin accounts.
• Allowing participant loans. A Solo 401k gives you the option to take a participant loan of up to $50,000 (or 50% of the balance) without tax penalties. You pay yourself back with interest over up to 5 years.
So now what is a Solo 401k? You can see from the nearly 10x contribution limits over IRAs and the added flexibility that a Solo 401k is the Economic Power House of retirement plans.
Avoid the Pitfalls of Custodian Solo 401k Plans
Not all Solo 401k plans are created equal. Watch out for these pitfalls:
• Custodian Solo 401k plans. Just because the law does not require a custodian doesn’t mean you automatically won’t get one. Many IRA custodians offer their version of a Solo 401k, but they take control as the middleman. You lose control and pay high fees while getting red tape in return.
• Unnecessary plan limitations. The law allows high contribution limits (including the employer match), but the individual plan may cut you short. The same applies to participant loans. Don’t get caught with a plan that is anything less than the maximum legally allowed.
• Harmful advice. Many custodians simply don’t understand the legalities of the Solo 401k. Some have promoted the illegal ROBS (Roll Over Business Startup) scheme, which can result in huge fines from the IRS. Don’t pay the price for their ignorance.
What is a Solo 401K? To sum it up, it is like an IRA on steroids.
You get maximum control, maximum pre-tax contributions and maximum flexibility and freedom.
And isn’t freedom the real reason why you are saving for retirement in the first place?
Will I Qualify for a Solo 401k?
If you are like me, you are probably very excited about the benefits that a properly designed Solo 401k can offer. But a Solo 401k is not for everyone.
If you want someone else to make your investment decisions and have all of the control, then a Solo 401k is probably not for you.
And if you already own a business with full-time W-2 employees, then you won’t qualify for a Solo 401k under the IRS tax code. Note: 1099 independent contract and part-time employees are OK.
If neither of those road blocks applies to you, then the only thing you will need to qualify for your own Solo 401k is the presence of self-employment activity. This can be full-time or part-time, your only income or an additional source of income. You can be a sole-proprietor or own a corporation, partnership or LLC.
And if you don’t yet have self-employment activity, we’ll show you a super-easy way to start without any significant investment of time or money like a full-blown business.
The Original Solo 401k
Jeff Nabers pioneered the self-directed IRA LLC and the Solo 401k and is also founder of the IRA Association of America.
There are many copies, but none can match the power and ease of a Nabers Solo 401k.
Stay tuned for as we roll out a bigger and better Solo 401k that includes everything you’ll need to make smart investing decisions.
If you want to get started right away please contact us here for more information.