5 Factors that Make Self Directed 401k a Better Retirement Option

A dream doesn’t become reality through magic; it takes sweat, determination and hard work.”

~ Colin Powell

The words of Colin Powell summarize everything that it takes to reach at the top. Who is better to understand the recipe of realizing dreams than an entrepreneur? Thousands of entrepreneurs work hard to achieve what they believe in. It is quite easy to identify an entrepreneur among a group of people. These usually smart professionals often fall short on one parameter: retirement planning.

self directed 401k

If you are a small business owner or self-employed professional, it makes perfect sense to invest in your retirement. There is no doubt that your idea and plan will come through but it doesn’t hurt to save for the rainy day. There are several retirement solutions available in the market but self directed 401k outmatches all of them.

5 Key Reasons to Choose Self Directed 401k

  • High Contribution Limits: Self directed 401k offers high contribution limits and one could contribute up to $53,000 in 2015 along with catch-up contributions of $6,000 for individuals above 60 years of age. The only other plan with similar contribution limit is SEP IRA.
  • Roth Contributions: Another differentiating feature of Self directed retirement plan is the ability to make Roth contributions. In conventional retirement plans, Roth contributions are not available to individuals with income above certain levels. However, this retirement plan offers Roth contributions, which means your investments would enjoy tax-free growth.
  • Participant Loan: Unlike other retirement plans available in the market, Self directed 401k plan allows participants to borrow from the retirement account. You can borrow up to 50% of the overall account balance with a maximum withdrawal limit of $50,000. These loans are available with an interest rate of prime rate plus one percent and offer an affordable financing option. You can repay the loan in 5 years with at least one premium payment per quarter.
  • Checkbook Control: Conventional retirement plans require you to get consent from the IRA custodian but self directed IRA is an exception. You can avail checkbook control facility and invest as you wish. There is minimal involvement of the plan custodian, which allows you to grab time bound investment opportunities.
  • Investment Options: The availability of flexible investment options in self directed retirement plan makes it unique. You can invest in real estate, precious metals, tax liens, private businesses, private lending, and similar investment options. This plan allows you to invest in an industry of your choice.

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