A solo 401(k) is another investment option for those looking to accumulate wealth for retirement. It allows you to invest in anything including real estate much like a self directed IRA real estate. The proceeds remain tax deferred until you withdraw the money. With a solo 401(k) the owner has control of the checks written to buy the investments. The 401(k) has high contribution limits of up to $54,500. The owner also has the ability to borrow up to $50,000 for any purpose. There are no custodial fees. The investment is approved by the IRS and these retirement assets are protected even if the owner is sued.
The solo 401(k) is the traditional 401(k) for one employee. The same rules apply for the solo 401(k) as for the traditional plan. Unlike the self directed Roth IRA which needs a custodian requiring the LLC, the solo 401(k) has the same abilities to buy investments from different sources without setting up an LLC. Sole proprietors, consultants and independent contractors can set up a 401(k).
The investment options for a solo 401(k) include real estate, tax liens, mortgage notes, precious metals, foreign property, foreign currency and businesses or franchises. If you see an investment opportunity and the resources are all tied up in your retirement funds, a solo 401(k) will allow you to use the money to make an investment. The catch is that all proceeds are a part of your retirement and cannot be realized until after retirement. If you buy a property that you would like to one day live in, you have to wait until after retirement before you move in.
The maximum contribution for an self directed IRA is $5,000. With a solo 401(k) you can contribute ten times that much. If you and your spouse run the business, you can contribute an additional $49,000 into the 401 (k) each year. You are your own trustee for the account, so you have control over the checkbook. You can write checks for new investments and you do not have to pay custodial fees. Investments can be made swiftly when you are in control of the funds. Due to an amendment of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) in 2002, the solo 401(k) was created.
The solo 401k has many benefits. The ability to grow money tax deferred is the major benefit and for those sums to be as large as $54,500 per year makes the plan especially beneficial for people wishing to shelter a lot of money. This money is not forever outside your reach, if you need a loan you can borrow as much as $50,000. Now you have the ability to invest in less volatile investments, such as real estate and gold. As the trustee of your own money with the solo 401(k) you save the custodial fee, giving you expedience when it’s time to invest.