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Solo 401(k)
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Everything you need to know about the Solo 401(k).
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What is a Solo 401(k)?
As the name implies, the Solo 401(k) plan is an IRS approved, qualified 401(k) plan designed for a self-employed individual or the sole owner-employee of a corporation. The Solo 401(k) plan is the most popular retirement plan for the self-employed.
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How does the Solo 401(k) work?
The Solo 401(k) plan is the best retirement plan for the self-employed or small business owner with no full-time employees because it is easy to set-up, operate, and administer. The business owner can serve as trustee of the plan and have total investment control over plan assets.
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Are all Solo 401(k) plans the same?
With a Solo 401(k) plan, the plan documents dictate the type of options you will have in your plan. For example, with a Self-Directed Solo 401(k) plan , you would be able to take advantage of all available plan options.
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What is a Roth Solo 401(k)?
A Roth Solo 401(k) allows you to make almost any type of investment tax-free. This includes real estate, tax liens, precious metals and more. You can also continue to make traditional investments, like stocks, bonds and mutual funds. When you reach age 59 1/2, you’ll have the ability to live off your Roth 401(k) assets without having to pay tax.
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What are the Solo 401(k) rules?
The Solo 401(k) plan offers very flexible contribution options, including pretax, after-tax, and Roth. In addition, there are many important rules that dictate how one can gain access to funds from a 401k) plan through distribution and/or a tax-free loan.
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What are the 2023 Solo 401(k) contribution limits?
For 2023, a Solo 401(k) plan will allow one to make high annual contributions of up to $66,000 or $73,500 if you are age 50 or older in pretax, after-tax, or Roth.
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What is a Solo 401(k) loan?
Pursuant to IRC Section 72(p), a Solo 401(k) plan loan feature allows one to borrow the lesser of $50,000 or 50% of their account value and use the funds for any purpose. The loan is a five-year loan and payments must be paid quarterly using the “Prime” interest rate, as per the WSJ.
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What is a Mega Backdoor Roth Solo 401(k)?
The advantage of making after-tax contributions and employing the “Mega Roth” strategy versus a typical mix of employee deferral and profit sharing contribution is that you can make a dollar for dollar contribution of up to $66,000 or $73,500 for 2023 and convert all the funds to a Roth IRA without tax.
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What are the most popular Solo 401(k) investments?
With the Solo 401(k), you can use your retirement funds to make almost any type of alternative asset investment, such as: real estate, investment funds, private businesses, Bitcoin, gold and hard money loans.
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What is UBTI?
Most Solo 401(k) plan investments are exempt from the Unrelated Business Taxable Income (UBTI) tax. Some examples of exempt type of income include: interest and rental income. However, there are types of income that could subject a Solo 401(k) to the UBTI tax.
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What is a prohibited transaction?
The Internal Revenue Code does not describe what a Solo 401(k) plan can invest in, only what it cannot invest in. Code Sections 408 & 4975 prohibits Disqualified Persons from engaging in certain types of transactions.
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What makes the Solo 401(k) so popular with real estate investors?
Pursuant to IRC 514(c)(9), a Solo 401(k) plan can use a non-recourse loan to buy real estate without triggering the UBTI tax. In other words, a Solo 401(k) plan real estate investor can leverage his or her assets and generate tax-deferred gains without any tax.
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What are the asset and creditor protection benefits?
For most Americans, their retirement accounts are their largest source of savings. As a result, Solo 401(k) plans are generally afforded strong protection from federal bankruptcy and state creditor protection outside of bankruptcy.