Why Choose Self Directed 401k Plan Over Brokerage Based Plan

Self Directed 401k over brokerage based solo 401k plan

Self Directed 401k

Self Directed 401k

Every passing year draws us closer to the retirement. For full-time workers, retirement plans are available under their work benefits and all of them are entitled to have one. How about self-employed people who run small businesses for a steady source of income? Solo 401k is a promising retirement option for owner-only businesses and self-employed professionals. They can choose from any of the two options available under this plan. The first type is the Self Directed 401k, which has a checkbook control feature. The other type of Solo 401k is the brokerage based 401k plan.

The power of Self Directed 401k checkbook control on your investment endeavors

The first type as mentioned above has checkbook IRA advantage which means a holder has the check writing authority for any transactions involving his or her retirement funds. The idea of having checkbook control over your account is to eliminate the delays of signing checks and contracts along with the elimination of transaction fee charged by the custodian. A brokerage based 401k doesn’t offer any such feature.

Self Directed 401k allows a qualified self-employed person to choose any investment option unlike the brokerage based plans under which, investments are limited to market-based assets (stocks and mutual funds). With the self-directed plan, investing in real estate, loans, mining, and even to private businesses are welcome. The annual contributions to each of these plans are made using pre-tax dollars; however, the self-directed option offers a Roth sub-account, allowing plan holders to make after-tax contributions.

Another highlight of the self directed 401k plan is the loan feature available for account holders. The plan participant is eligible to borrow up to 50% of their account funds to a maximum capping of $50,000 for any reasons the account holder finds necessary. When compared with the brokerage based Solo 401(k), the self-directed option fairs much better as a Solo 401 k plan.