In searching for the optimum tax free investment, it becomes clear that the various forms of Individual Retirement Accounts (IRAs) offer distinct advantages. An IRA is available to the company-employed and self-employed. In traditional IRAs, contributions may be tax deductible, depending on income level, and investment earnings are tax deferred until withdrawn. Roth IRA contributions are not tax deductible, but qualified withdrawals are tax-free. Unlike Roth IRAs, traditional IRAs are subject to required minimum distributions at the age of 70 1/2.
The families of individuals with tax deferred accounts are also included in the 401K plans: employer-sponsored retirement accounts that enable employees to make contributions on a pre-tax basis. However, employees have become dismayed since many companies have ceased or reduced matching contributions. Also, investment options in these plans have usually been limited. Options to continue tax deferral at termination of employment include IRA rollover or simply leaving funds in the plan without further contribution. If the employee takes a position with another company that offers a 401K plan, moving the funds to the new company’s plan might be an alternative.
IRAs usually offer a wide array of investment options other than 401Ks. However, clients have historically been directed towards stocks, bonds, and mutual funds, often overlooking alternatives such as real estate, tax liens, foreign currency, and precious metals. In addition, the custodian of the financial institution is in control of the investment choices offered; that person has absolute discretion to change those options at any time. So what is the solution? Learn about solo 401K plans and the self-directed IRA.
The solo 401K plan offers a unique opportunity for a select group. For maximum contributions 401K solo accounts, the plan offers the ability to deposit nearly 10 times more than an IRA. A range of investment choices, the potential to borrow up to $50,000 for any purpose, and the zero custodian fees are clearly advantageous incentives. However, the solo 401K rules demand that the investor be self-employed and have no full-time employees.
The self directed IRA LLC puts the investor in control. Company employees and self-employed individuals are eligible for this investment vehicle that offers available options and does not require custodian approval.