An individual 401K Plan, also known as a Solo 401K or Self Directed 401K Plan is a 401(k) plan that was specifically designed by the IRS for small business owners and the self-employed. The individual 401K Plan has many advantages over a conventional 401K plan that are typically adopted by employers with multiple employees. The individual 401K plan was designed by the IRS to offer self-employed individuals the ability to maximize their annual retirement contributions while being cost effective and easy to administer.
Any type of retirement funds other than a Roth IRA may be directly rolled over tax-free to an Individual 401K Plan. This includes a Traditional IRA, SEP IRA, SIMPLE IRA, 401(k), 403(b), 457, and other retirement assets. In order to execute the direct rollover, a direct rollover request form or internal custodian document must e completed indicating the name of the individual 401K Plan and financial institution where the account is opened. Since an Individual 401K Plan can be opened at any local bank or credit union, the retirement funds will be directly rolled into the individual 401K plan account. There is no minimum or maximum amount of retirement funds that can be rolled into an Individual 401K Plan. In additional, all retirement plan funds that have been rolled into the individual 401K Plan can be rolled out at anytime – no plan triggering event is required.
Once your retirement funds have been directly rolled over tax-free to the individual 401K Plan, you, as the trustee, of the individual 401K, will have checkbook control over the assets. In other words, as trustee of the individual 401K Plan, you will no longer have to get permission to make an investment using your retirement funds. Like a Self Directed IRA, an individual 401K Plan allows you as the trustee to make traditional as well as nontraditional investments, such as real estate. The IRS and Department of Labor only describes the type of investments that are prohibited, which are very few.
The following are a few examples of types of investments that can be made with your Individual 401K:
- Residential or commercial real estate
- Domestic of foreign real estate
- Raw land
- Private loans
- Tax liens
- Private businesses
- Hedge funds/Private Equity Funds
- Precious metals and certain coins
- Stocks, bonds, mutual funds
- Foreign currencies
Once you have directly rolled over your retirement funds to an individual 401K, making an investment is as simple as writing a check. Plus, you will have the opportunity to make high contributions and borrow up to $50,000 tax-free for any purpose.