Self Directed IRA vs Solo 401k: The Big Difference between the Two Self Employed Retirement Plans

self directed ira vs solo 401k

self directed ira vs solo 401k

Both self employed retirement plans when self directed can provide great advantages compared to the traditional ones. However, in self directed IRA vs Solo 401k, the latter has the best features offered to its participants

Self directed retirement plans for self employed are considered to be the best option when it comes to saving for retirement, but there is no doubt that between the self directed ira vs solo 401k, the latter is a more competitive choice. However, not all business owners can qualify for this plan because the Solo 401k is designed for self employed individuals and their spouse (if there is one) whose business runs without any fulltime employees on their payroll list. That is why the Solo 401k is also known as the owner-only 401k. Owners of bigger enterprise with fulltime workers can get the self directed IRA plan instead.

In terms of contribution limit, the higher the maximum contribution is, the better it is for the account. This means more amount can be saved, more amount can be invested, and more amount of returns from investments can be received. Between the two plans, the Solo 401k has higher contribution limit because aside from salary deferral contribution limit of up to $17,500 (or $23,000 for participants 50 years old and above) the profit sharing contribution of up to 20% of the business’ adjusted net profit can also be combined. These types of contributions can be maximized up to $52,000 (or $57,500 for 50 years old and above participants).

In terms of investment options, self directed 401k plans are pretty much similar to the self directed IRA because both plans can be invested in non-traditional assets like real estate, mortgage notes, loans, businesses, and other investment vehicles that the owner of the account desires. Both plans provide the participants total control over their account. However, between self directed IRA vs Solo 401k, the Solo 401k has loan advantage that can be accessed when necessary. Moreover, Solo 401k account holders need not to open a separate account if he or she wishes to make Roth contributions because the account itself has a built in Roth subaccount.

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