Reason to Invest Retirement Funds in a Solo 401k: Avoid Taxes

June 14th, 2011

A solo 401k plan can be the perfect solution for self employed business owners. A self employed business owner can truly maximize earning potential with a self directed IRA plan. With a 401k plan, a business owner has the ability to make almost any kind of investment tax-free. The ability to invest without having income taxed is one of the most incredible benefits of having a self directed Roth IRA plan.

A self employed business owner may choose to invest in a variety of resources. First, a person can invest in real estate. Being able to purchase real estate and claim it as an “investment” is one of the major perks of having a self directed IRA real estate plan. Other types of investments that can be made under a Roth IRA plan are tax liens, precious metals, businesses, and foreign currency. There is no end to the type of investment a person can make under a Roth IRA plan.

A solo 401k also allows business owners to make very large contributions. FA single person can make a contribution of up to $49,000 a year to a plan, and with a spouse involved in the business, that contribution can be up to $54,500 a year to any independent 401k plan. This amount is about 10 times larger than a traditional IRA plan.

One of the safety features of a self directed IRA plan is the ability to borrow up to $50,000 at any time and for any purpose. In a tough economy, this is one of the best features of a retirement plan. If an investment begins to perform poorly, that money can be pulled out. With other types of retirement plans, the option to pull out money whenever one wants is not available. In addition, with other types of retirement plans there may be a severe tax penalty for pulling money out of a retirement plan.

With a solo 401k, one also has the ability to make amendments to the plan, or even dissolve the retirement plan.

Overall, it is definitely worth considering setting up one of these retirement plans as they offer a flexibility that can be found in no other retirement plan.