Self Directed Solo 401k ROBS
Clearing the confusion between ROBS and self-directed Solo 401k plans starts by focusing on the “R” in ROBS. The “R” stands for “rollover.” ROBS, or a “rollover as business start-up” plan, allows the plan holder to rollover the account proceeds into capital for a new or existing business. A C-Corporation structure is used for the capital, and the transaction is tax and penalty-free.
What is a self-directed Solo 401k plan?
For a self-directed Solo 401k plan, a self-employed person or sole owner/employee of a corporation adopts the plan. That owner/trustee directs the plan into a wide range of available investments, such as real estate, precious metals, tax liens, trust deeds and private placements.
The self-directed Solo 401k also has high contribution limits and a participant loan feature that allows you to borrow up to $50,000 or 50% of the plan balance (whichever is less) for any reason. You can use the loan to then fund your business, benefitting both your business and the 401k as an investment. You make Roth contributions into the Roth sub-account of the 401k, growing the investments tax free. Checkbook control gives you the ability to control all investment decisions without a custodian or third party administrator.
Understanding the differences
The Solo 401k also differs from ROBS in that the 401k cannot own 50% or more of any business, including a C-Corporation.
The confusion between these two types of plans exist because companies often wrongly advertise the ROBS as a self-directed 401k. With this in mind, make sure to ask your provider to outline their exact services before proceeding.
