A Solo 401(k) Plan is designed for the self-employed and offers powerful features that are not found in conventional IRA or 401(k) plans.? It is a flexible and tax efficient retirement solution that will open up a world of investment opportunity with unlimited potential.? You can use your retirement account to invest in Real Estate, Notes, Tax Deeds, Tax Liens and much more.?
The Solo 401(k) plan is unique and becoming very popular because it is designed explicitly for small business owners. It?s a tax efficient and cost effective plan that offers all the benefits of a Self-Directed IRA plan but includes additional benefits.
Checkbook Control without Custodian Fees:
In a Solo 401(k) Plan, you serve as trustee of the Plan which gives you ?checkbook control? over the Plan?s assets.? Making an investment with a Solo 401(k) Plan is as easy as writing a check, meaning that ?you do not have to hire a bank or trust company to serve as trustee. All assets of the Solo 401(k) trust are under the sole authority of the Solo 401(k) participant, eliminating the expenses and delays associated with an IRA custodian and enabling you to act quickly when the right investment opportunity presents itself.
High Contribution Limits:
While an IRA only allows a $5,000/yr. contribution limit ($6,000 for those over age 50), the Solo 401(k) annual contribution limits are significantly higher, up to $55,500/yr. That?s nearly 10 times more compared to an IRA!? Also, if your spouse generates compensation from the business, he or she can make contributions to the Plan.
Flexibility:
While you have the option to shelter a large portion of your income, contributions to a Solo 401(k) plan are completely discretionary. You have the option of contributing as much as legally possible, but you also have the option of reducing or even suspending plan contributions if necessary. In other words, you have the ability to make contributions to your Solo 401(k) Plan but are not required to do so.
Roth Sub-Account:
With an IRAs, those who earn high incomes are disallowed from contributing to a Roth IRA.? The Solo 401(k) plan contains a built-in Roth Sub-Account which gives you the ability to make Roth type contributions (after tax) significantly greater than with an IRA, without any income restrictions (for 2012 Roth Solo 401(k) maximum contribution is $22,500). ??This allows you to grow your investments tax-free!
Loan Feature:
While an IRA offers no participant loan feature, the Solo 401(k) allows participants to borrow up to $50,000 or 50% of their account value (whichever is less). This offers a Solo 401(k) Plan participant the ability to access up to $50,000 for any purpose, including paying personal debt, funding a business, or investing in real estate.
Exempt from UDFI:
When an IRA buys real estate that is leveraged with mortgage financing, it creates Unrelated Debt Financed Income (?UDFI?) ? a type of Unrelated Business Taxable Income (also known as ?UBTI?) in which taxes must be paid. The UBTI tax is approximately 35%. ?With a Solo 401(k) plan, you can use leverage without being subject to the UDFI rules and UBTI tax. This exemption provides significant tax advantages for using a Solo 401(k) Plan versus an IRA to purchase leveraged real estate.
Cost Effective Administration:
Generally, Solo 401(k) plans are easy to operate. There is no annual filing requirement unless your Solo 401(k) plan exceeds $250,000 in assets, in which case you will need to file a short information return with the IRS (Form 5500-EZ).
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