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Self Directed 401K Advantages

A solo 401k, or a individual 401K Plan is also often referred to as a self directed 401k. The self directed 401k plan was created by the Internal Revenue Service in the early 1980s to offer the self-employed and small business owners with the opportunity to participate in qualified retirement plan.

An self directed 401K Plan is perfect for any self-employed individual or small business owner with no employees other than the owner/spouse.

The following are some of the advantages of adopting a Self Directed 401K Plan:

Defer up to $54,500 Annually: With a Self Directed 401K Plan, a plan participant who has sufficient income can make annual contributions up to $49,000 annually with an additional $5,500 catch up contribution for those over age 50. In addition, the employee deferral contributions can be in pre-tax or Roth (after-tax).

Tax-Free Loan: With a Self Directed 401K Plan, pursuant to Internal Revenue Code Section 72(p), a plan participant is eligible to borrow up to $50,000 or 50% of their account value (whichever is less) for any purpose. 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). There is no pre-payment penalty.

Open the Account at any Local Bank: One of the most popular aspects of the Self Directed 401K Plan is that it does not require the participant to hire a bank or trust company to serve as trustee of the Self Directed 401K Plan. The Self Directed 401K plan account can be opened at any local bank or credit union and the plan participant can serve as trustee and plan administrator of the Plan.

Trustee Directed: With a Self Directed 401K Plan, the plan participant (you) has total control and investment discretion over the 401k plan funds. A Self Directed 401K plan allows you to eliminate the expense and delays associated with an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself. With a Self Directed 401K Plan, making a 401K Plan investment is as simple as writing a check or doing a wire.

Investment Freedom: With a Self Directed 401K Plan, you will be able to invest in almost any type of investment opportunity that you discover, including real estate (rentals, foreclosures, raw land, tax liens etc.) tax-free!

Use Leverage Penalty & Tax-Free: Unlike an IRA which is subject to tax on using non-recourse leverage, Internal Revenue Code Section 514(c)(9) provides an exemption, allowing an Self Directed 401K plan to use non-recourse leverage to make a real estate acquisition without tax or penalty.

EZ Plan Administration: The Self Directed 401K Plan is easy to administer. There is generally no annual filing requirement unless the assets in your Self Directed 401K Plan exceeds $250,000, in which case you will need to file a short information return with the IRS (Form 5500-EZ).

The IRA Financial Group will take care of setting up your entire Self Directed 401K Plan. The whole process can be handled by phone, email, fax, or mail and typically takes between 2-10 days to complete, the timing largely depending on the time it takes your current retirement asset custodian to move the funds to the Self Directed 401K Plan account. Our tax and ERISA attorneys are on site greatly reducing the set-up time and cost. Most importantly, each client of the IRA Financial Group is assigned a tax attorney to help with the establishment of the Self Directed 401K Plan.

For additional information on the Self Directed 401K Plan, please contact us at 800-472-0646.

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Posted in Solo 401(k)

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