Selecting the best solo 401K plan provider is an important decision that should be researched thoroughly. Below are several tips to help you select the best solo 401(k) Plan provider for your self-employed or small business retirement plan.
1. Always make sure you are working with a tax attorney: There are several companies on the internet that advertise themselves to be solo 401(k) plan providers and experts, however, in most cases, the people that would be involved in drafting your Solo 401(k) plan docs as well as advising you are not attorneys. Working with an experienced tax attorney when looking for a Solo 401(k) Plan provider is crucial in ensuring that your plan will be properly set-up as well as remain in full IRS compliance. The Solo 401(k) plan is based off the rules found in the Internal Revenue Code, which can be quite complicated to the non-tax attorney. Therefore, it is strongly advisable to work with a Solo 401(k) Plan provider, like the IRA Financial Group or Bergman Law Group to establish your IRS approved Solo 401(k) Plan.
2. Opt for the Self-Directed Solo 401(k) Plan: Not all Solo 401(k) Plans are the same. Most Solo 401(k) Plans offered by a bank or financial institution are not self-directed. What that means is that you will be restricted to making the investments offered by the bank or financial institution and will not be permitted to purchase real estate, precious metals, etc. Once you adopt a Solo 401(k) Plan, you might as well have a plan that features all the IRS options allowable for Solo 401(k) Plans, including the ability to make non-traditional investments, such as real estate.
3. Borrowing from your plan: Not all Solo 401(k) Plans include a loan feature, which is an IRS approved feature. IRA Financial Group’s Solo 401K Plan allows plan participants to borrow up to $50,000 or 50% of their account value (whichever is less) for any purpose, including paying credit card bills, mortgage payments, personal or business investments, a car, vacation, or anything else. The loan has to be paid back over a five-year period at least quarterly at a minimum prime interest rate (you have the option of selecting a higher interest rate).
4. Take Advantage of the Roth Benefit: Most Solo 401K Plan providers do not allow for Roth (after-tax) contributions. IRA Financial Group’s Solo 401K Plan contains a built in Roth sub-account which can be contributed to without any income restrictions. In addition, most Solo 401(k) plan providers do not allow for in-plan Roth conversions or rollovers. Whereas, IRA Financial Group’s Solo 401K Plan allows for in-plan Roth conversions. However, the Solo 401K Plan participant must pay income tax on the amount converted.
5. Ongoing Tax & legal Support: Just because your Solo 401(k) Plan has been established does not mean that you no longer need any ongoing tax and legal support. Most Solo 401(k) Plan providers are headed for the exit once the plan has been established. As you begin administering your Solo 401(k) Plan, whether it involves making employee deferral or profit sharing contributions, making a non-traditional investment, taking a plan loan, or considering a Roth conversion, you will want to be able to have the ability to consult with a tax attorney and get the accurate answers to your plan related questions. The ongoing maintenance of the Solo 401(k) Plan is crucial is making sure your Solo 401(k) Plan remains in IRS compliance and that all your plan contributions and investments gains are respected by the IRS.
To learn more about the importance of selecting the right solo 401(k) plan provider, please contact a retirement tax expert at 800-472-0646