Self-Directed Roth IRA or Solo 401(k)? Which should I Contribute To First?

As it is so often in investing, the answer is “it depends.” Both the Self-Directed Roth IRA and the Solo 401(k) are very popular among investors who embrace the advantages of self-directed strategies. But they are not only taxed differently – they are also structured differently.

Consider prioritizing your Self-Directed Roth IRA first under the following circumstances:

  • You are relatively young, or have an extra long time horizon.
  • You want to pass a lot of money on to heirs
  • You are sensitive to a possible estate tax down the road. Roth IRAs have a lower estate tax footprint, since they move money that your estate will eventually have to pay in taxes out of the taxable estate.
  • Your income is lower now than it will be in the future.
  • Your tax bracket is lower now than it will be in the future. That is, would you rather pay your income tax rate now? Or would you rather pay the rate you’ll be in when you retire? If you’re probably paying a lower rate now, then emphasize the Self-Directed Roth IRA.
  • You’re in a state that provides a lot of creditor protection to IRAs in the event of bankruptcy.
  • You don’t want to have to worry about required minimum distributions down the road
  • You don’t own a company or have a lot of self-employed income you can contribute to a self-directed Solo 401(k)
  • You’re not getting a match from an employer’s 401(k) other than a solo 401(k) that you control
  • You have a weak 401(k) plan at work that won’t let you self-direct, and has lousy mutual funds and other investment options, or only offers high-expense funds.
  • You don’t expect to need to borrow money out of your 401(k) in the future.
  • You want the more flexible hardship withdrawal options that IRAs come with.

On the other hand, maxing out a solo 401(k) plan, or any other 401(k) plan that has your desired features may work best for you under the following circumstances:

  • You can pick up an employers’ matching funds.
  • You own a C corporation and would pay high taxes and double taxation on money that doesn’t go into a tax-deferred 401(k) plan.
  • You want to maximize the amount you can contribute and only run a single plan for the time being.
  • You want to be able to take a loan out of your Solo 401(k)
  • You want to retire early and be able to make early withdrawals. 401(k) rules let you take money out of your plan at age 55 without a 10 percent penalty if you’ve left the company. IRAs make you wait until age 59½.
  • You want to leverage, for example, to buy real estate within your retirement account with a mortgage. In an IRA, you’d have to pay an additional tax, called the unrelated business income tax, on income and capital gains attributable to other peoples’ money. In a 401(k), you may be able to avoid that tax. Speak with your tax advisor for more information.
  • You want extra protection against creditors, including the IRS. 401(k)s are much tougher for creditors to crack.

American IRA, LLC provides top-notch administration for owners of Self-Directed Roth IRAs or self-directed 401(k)s. Our services allow you to tap the tremendous tax advantages of using self-directed retirement accounts but also maximize your choices and options.

For more information, call American IRA, LLC today at 866-7500-IRA(472), or visit us on the Web at

We look forward to working with you.

Self-Directed IRA and the ‘Backdoor Roth’

At American IRA, many of our Self-Directed IRA clients are very successful. Sometimes, extraordinarily so. And so some of them find themselves restricted from making tax deductible contributions to a traditional IRA, or even from making new contributions to their Self-Directed Roth RAs.

That’s where the so-called ‘backdoor Roth’ contribution comes in for Self-Directed IRA owners: While there are income limits to one’s eligibility to contribute money to a Roth IRA, there are no income limits when it comes to Roth IRA conversions. You can roll over hundreds of thousands of dollars into a Roth IRA, or even more, regardless of your current income. Of course, you’ll have to pay income taxes on money you roll out of a traditional IRA, 401(k), or SIMPLE IRA into a Roth IRA during the conversion process. But depending on your current and future tax brackets and expected future returns, it could be worth it – especially if you don’t convert so much that it puts you in a higher marginal tax bracket.

For 2017, the income limits for eligibility to contribute to a Roth IRA or self-directed Roth IRA are as follows:

Baseline contribution limit: $5,500, plus an additional $1,000 per year in “catch up” contributions for those age 50 and older.

Single filers: May contribute the full baseline amount up to an adjusted gross income (AGI) of 118,000. After that point the amounts they are eligible to contribute begin to phase out, until their contribution limits phase out entirely at an AGI of $133,000.

Joint (married) filers: May contribute the baseline amount of up to $5,500 (or $11,000, including a spousal IRA), plus an additional $1,000 in catch-up contributions per person age 50 and older, up to an adjusted gross income (AGI) of $186,000. Above that AGI level, their contribution limits begin to phase out at $186,000 until they reach zero at an AGI of $196,000.


Note: If you haven’t yet made your contribution to your Self-Directed IRA for tax year 2016, there is still time! You have until April 15th, 2017, to make your Self-Directed IRA contributions for tax year 2016. This gives you time to fill out your tax return and figure out exactly how much you may be able to convert to a Roth IRA, or self-directed Roth IRA, before you are pushed into a higher marginal tax bracket.

To execute a backdoor Roth rollover with American IRA, LLC, call us first, and we’ll send you a few forms to establish an account to hold your converted Roth IRA funds. Another form you fill out will authorize us to contact your current custodian for your traditional IRA funds and have them liquidate your account and wire the proceeds directly to us.

This direct trustee-to-trustee transfer is a non-taxable event, when you roll eligible traditional IRA, 401(k), 403(b), SEP or SIMPLE IRA funds into another IRA. But if you are rolling tax-deferred money into a Roth IRA account, it counts as a conversion, and you will be charged income tax on the money rolled over. You will not be charged an additional 10 percent early-withdrawal penalty on rollovers, whether they are straightforward trustee-to-trustee rollovers or transfers.

Getting Started

For best results, try to pay the taxes with money outside of your retirement accounts. That way you won’t be paying income taxes and penalties on money you are just using to pay taxes and penalties. You also preserve the maximum amount of assets for favorable tax treatment in the Self-Directed IRA.

If you are considering a backdoor rollover and you are interested in the advantages of self-direction of your retirement assets, we want to hear from you! Contact American IRA, LLC at 866-7500-IRA(472), or visit our website at

We look forward to working with you.

Self-directed Roth IRA

Why he chose a Self-Directed Roth IRA

In August of 2005, DiStock_000016639234_ExtraSmallavid G., one of our clients, opened a self-directed Roth IRA. He’d heard about self-directed IRAs through a seminar that I did. The reason he opened a self-directed Roth IRA is because he wanted an account that grows tax-free and allows for future distributions that are tax-free forever.

The one thing that you’ve got to understand about a Roth is that once it’s qualified, it’s tax-free forever.

Direct non-taxable transfer from his Roth IRA to his self-directed Roth IRA

He funded his Roth IRA with a direct non-taxable transfer. Many people say “is there any consequence to me transferring from my current provider to a self-direct account? What is sometimes overlooked is that they’re the same account.”

We have the same job as the securities industry, except we allow you to invest in different types of assets, as opposed to just securities. These are non-taxable transfers from two previously established Roth IRAs in the amount of $6,800; $3,800 and $3,000. That was his funding for the account.

Yes, David G. began with only $6,800 and yet in 5 short years, he grew his self-directed Roth IRA to $293,000! Many people believe that they don’t have enough money to start a self-directed Roth IRA…David G.’s success is proof positive that great success can come even with a small account. This article covers his 1st deal!

David G.’s first purchase with his self-directed Roth IRA

In January 2007, David G. found an oversized residential lot with water, sewer, a phenomenal view of the mountains, and a separate deed for each of its two separate parcels, for sale. It was listed for $18,900 and David knew the market value was $31,000.

How does $6,800 turn into $18,900?

David G. obtained the additional funds he needed by partnering with his wife’s Roth IRA. I know…you are thinking: “Hold on! His wife is a prohibited person!” You are absolutely correct; however, you can partner with prohibited people so long as you do so at the time of acquisition. If you don’t have a large account, you can still do a transaction by partnering with someone else.

Self-Directed Roth IRA






Why he opened his self-directed Roth IRA 2 years before he used it…

David G. had lost his confidence in Wall Street. Even though he didn’t have an investment picked out at the time, he opened his self-directed Roth IRA and he had confidence that he would find a worthwhile future investment to direct his retirement funds to.

What you have to consider is that many times what we find is that the client says I’ll open an account when I find something. If you wait until you find something and you find a very good deal, there’s a timeframe to open these accounts. We can do it very quickly. However, getting the money from provider A to us does take time – anywhere from one to three weeks, and in some cases longer if they drag their feet.

You’ve got to be prepared to make the investment, and tripping over a couple of pennies of perceived return may be interest that you may think you’re going to get or the stock market hoping it doesn’t go down before you make the move.

If you enjoy real estate, you want the chance to use leverage within your IRA account to fund your retirement, and you are up for acting as a landlord, you should consider using a self-directed Roth IRA to own real estate. For a free consultation, please call us at 1-866-7500-IRA (472).

This is a great opportunity afforded to us by our government; as long as you follow the IRS guidelines, this is a phenomenal tool!