Solo 401K Investment Options
Using retirement funds, such as an IRA or 401K Plan to make investments offers a number of tax advantages, such as tax-deferral and tax-free investing in the case of a Roth IRA or Roth 401K. When it comes to engaging in investments with a 401(k) or Solo 401K Plan, the IRS does not state what you can invest in, but only presents certain types of investments that are not permitted – also known as prohibited transactions. As a result, when determining whether an 401(k) Plan may make an investment, it is important to become familiar or speak with a tax professional who is well educated in the prohibited transaction rules pursuant to Internal Revenue Code Section 4975.
For the self-employed or small business owner with no employee, the Solo 401K Plan also known as the Individual 401K or Self Directed 401K, offers an attractive vehicle for making investments using 401(k) plan funds.
With a Solo 401K Plan, the plan participant will be able to invest in almost any type of investment opportunity, including: real estate (rentals, foreclosures, raw land, tax liens etc.), private businesses, precious metals, hard money & peer to peer Lending as well as stock and mutual funds. In general, one’s only limit is ones imagination. Aside from a small number of transactions involving a “disqualified person” (i.e. plan participant and his or her lineal descendants), the IRS does not restrict the types of investments that may be made with a Solo 401K Plan.
One big advantage of using a Solo 401K Plan to make 401K plan investments is the concept of tax-deferral. Because a Solo 401K Plan is tax-exempt pursuant to Internal Revenue Code Section 401, in general, all income and gains generated by plan investments will flow back to the Plan tax-free. The Solo 401K Plan is not required to file and state or federal income tax returns. The only time tax is due is when the Solo 401K Plan participant takes a distribution from the Plan.
The following are some examples of types of investments that can be made with a Solo 401K Plan:
- Residential or commercial real estate
- Domestic or Foreign real estate
- Raw land
- Foreclosure property
- Private loans
- Tax liens
- Private businesses
- Private placements
- Hedge funds
- Private equity funds
- Precious metals and certain coins
- Stocks, bonds, mutual funds
- Foreign currencies