Menu Close

IRA Financial Group Blog

Even Santa Can Have a Solo 401k

even santa can have a solo 401k
3 Minute Read

This time of year, a lot of thought goes into Santa and his workshop. But has enough consideration been given over to retirement for the jolly old elf? In the North Pole, self-employed Santa’s are working for themselves, which makes them eligible to set up a Solo 401k Plan. But of course, even Santa knows he can’t be in multiple places at once, therefore he reinforces the Santa’s we see at shopping malls and community events. Because they are performing a part-time gig as Santa, they are also eligible for a Solo 401k!

It’s the time of year for Santa to visit parties and homes, firehouses and festivals. And if the big red elves are not working for a big corporate entity, and in fact on their own, they can reap some big benefits for it. The same applies for elves, in the event that Santa is not offering a traditional corporate retirement plan.

The Solo 401(k) Will Give Santa Many Benefits

A Solo 401k plan is a specially designed retirement plan for solo workers, the self-employed, and their spouses. It lets a worker, in this case, Santa, take their self-employed income and invest it in their own choice of assets, presumably gingerbread factories and gumdrop candy creators. But why would Santa want to establish a Solo 401(k) retirement plan? That’s an easy answer: contributions for a Solo 401k plan are significantly higher than other self-employed plans due to the two-stream nature of contributing from the employer and employee. It also comes with a few additional benefits, like a tax-free loan feature.

Santa Can Invest Outside of the Stock Market

For those Santa’s who work independently, the self-employed holly jolly gentlemen can make contributions to their retirement, presumably not at the North Pole, as both the employer and employee. This means a greater amount of money going into personalized investments. While there are limitations, the stock market is no longer it. Investments can be made in alternative and traditional entities, such as real estate projects, should Santa want to buy a house in Hollywood and flip it for a profit. Or precious metals, if Santa is a big fan of silver and gold.

Or maybe Santa wants to buy a property for all his elves to live in and play the role of landlord. With a Solo 401k plan, this is possible. Furthermore, Solo 401(k) plans have a special UBIT tax exemption. If Santa wanted to use a nonrecourse loan (leverage) for purchasing the property, he wouldn’t be subject to the hefty UBIT tax. Solo 401k owned properties cannot be used by a disqualified person, and there can be no sweat equity, working on the site, or living on the property itself.

And for a Solo 401k there is no vesting schedule, which means money contributed is available immediately. This can be very helpful if you’re a right jolly old elf who probably makes the most of his money during the winter holiday season. Of course, Santa can still contribute if called upon to show up with the Easter Bunny and Tooth Fairy during other seasons of the year.

What is Self-Employment Activity?

Self-employed activity generally includes ownership and operation of a sole proprietorship, LLC (Limited Liability Company), C Corporation, S Corporation, and Limited Partnership where generating significant revenue to contribute is the intended aim. Self employed activity can be part time or full time and can even be in support of other full-time employment.

Waiting for Santa is an activity millions of children around the world engage in every Christmas season. It’s the shiny lights reflecting in the eyes of innocent kids that brings such magic to this time of the year. Investing in retirement is an activity millions of Americans engage in all year long. But it shouldn’t be left to magic to make your retirement dreams a reality.  

Related Articles