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Being a Solo 401k Participant

Solo 401K is a kind of retirement plan approved by the IRS that is designed to benefit a self-employed person or a single owner-employee of a company. It is other times known as Individual K, Single K or Self Employed 401K plan. It is not really a new plan but since the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) passed in 2001, it has gained popularity.

The EGTRRA describes how the retirement plan can be used by a self-employed person and how they can make their contributions. However, there are some requirements that one must meet to access Solo 401K; for instance, a self-employed person must be able to show self employment activity and prove there are no full time employees. The Solo 401K allows the participant to use their retirement funds for any investment on their own, without seeking consent from a custodian. One of its benefits is that it offers a high yearly contribution limit of up to US$54,000, and the participant can borrow up to US$50,000 without attracting any custodian fees.

Unlike the Self Directed IRA (Individual Retirement Account) that requires an account holder make investments on behalf of the retirement plan, the Individual K does not. Self-Directed IRA allows a trustee or custodian to hold the IRA assets for the IRA owner. The custodian is the one responsible for maintaining the documents and statements of the IRA owner. Here, the custodian selects some standard asset types from which the IRA owner can choose: mostly stocks, mutual funds and bonds.

When you are participating in the Self Employed 401K, you can invest under self directed IRA real estate. You can invest your money in an investment vehicle that you choose. Under self directed IRA real estate, you can put your retirement funds in the real estate development of your choice and experience the benefits that are related to real estate investing.

Self directed Roth IRA is a little different from the traditional retirement plans. It was introduced in 1997 by Congress. The biggest advantage of this is that when you make contributions, all distributions from the Roth IRA do not attract tax at all, not even the investment returns so long as certain requirements are met. There is no age limit for the self directed Roth IRA, so you can continue contributing as long as you are earning income.

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Posted in Solo 401(k)

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