What is a Solo 401k?
Many wonder, what is a Solo 401k account and how it works. The Solo 401k is a retirement plan designed for the small business owner. This is an individual who is self-employed with no additional full-time employees other than him/herself and/or a spouse.
There are a variety of ways for the self-employed to contribute to a pension plan or retirement fund. But none is more attractive than the Solo 401k plan. This qualified retirement plan opens new doors for individuals looking beyond the retirement norms of SEP-IRAs, profit-sharing or money purchase plans.
So what is a Solo 401k exactly?
The Solo 401(k) has already eclipsed the Self Directed IRA as the preferred method of retirement investing for small business owners. Now the self-employed can do even more with their money, due to the Solo 401(k) plan’s larger contribution limits and the ability to borrow cash from the plan at an affordable rate. The Solo 401(k) allows you to contribute more than you could to a SEP (simplified employee pension) IRA.
The self-directed Solo 401(k) plan also allows retirement investors to directly control their investments with little or no restrictions.
Some things you can do with the self-directed Solo 401(k) plan include:
- Mange your own accounts without the hassle and confusion of a middle man
- Avoid certain Unrelated Business Income Tax (UBIT) on leveraged real estate as with a self-directed IRA
- Contribute higher amounts of money annually than other similar retirement plans
- Borrow up to $50,000 or 50% of Solo 401(k) account value tax-free and penalty free
- Investors have the option to make “after-tax” or Roth contributions by using the salary deferral portion of the Solo 401(k)
- Convert existing retirement accounts into a Solo 401(k)
- Solo 401(k) contributions can be adjusted up/down or skipped completely if business is slow
- Freedom to choose alternative investment choices, such as precious metals, real estate, private companies, and foreign assets
Related Terms:
- What is a Solo 401k
- Self Directed IRA
- Self Directed Solo 401k
- Solo 401k Checkbook Control