Why Consider a Self-Directed Solo 401(k) Plan

If you are like most small, independently-owned business owners, you probably want to be able to pull as much cash out of the business as you can, put it aside on a tax-advantaged basis, and at the same time protect your growing nest egg from possible creditors.

This is a problem for many successful business owners, because they make too much money to qualify for tax-deductible IRA contributions.

Introducing the Self-Directed Solo 401(k)

For many business owners, the solo 401(k) has become one of the most attractive ways for them to set aside retirement funds – not least because of the extraordinarily high potential contribution limits compared to IRAs. Much of the advantage stems from the ability to combine the ‘employer contribution’ with the ‘employee’ contribution. This is a particularly potent idea for those business owners with few or no employees besides the owner and perhaps a spouse: The employer contribution doesn’t have to be spread among many employees. Instead, the benefits are concentrated with the owner.

2015 Contribution Limits

For 2015, any participant age 50 or less can contribute up to $18,000 in employee-deferred compensation (the elective deferral limit). Normally, these are made pre-tax, although an after-tax version that grows tax-free (the Roth option) is also available for those who would prefer to pay taxes now in exchange for a lifetime of tax-free growth.

As for the employer contribution, the plan sponsor may contribute up to 25 percent of your compensation up to $265,000 as an employer contribution (for corporations or multiple-member LLCs) or 20 percent in the case of sole proprietors and single-member LLCs. (The difference is due to the effect of self-employment taxes on contributions).

Catch-Up Limits

For those over age 50, the maximum amount of elective deferral contributions is increased to $24,000, either in pre-tax or after-tax dollars. Combined with the potential employer contributions, a business owner or entrepreneur could actually contribute up to $59,000

In contrast, the most an individual can contribute to an IRA or Roth IRA is $5,500 ($6,500 in the case of those over age 50). Likewise, the most you could set aside for yourself using a SIMPLE IRA is $12,500


401(k)s offer the ability to borrow from your plan for any purpose. This is a unique feature not allowed in any other retirement plan. Generally, if you choose to borrow from a 401(k) plan, you must repay the loan with interest within five years, or the unpaid balance is counted as a distribution. In this case, it could generate income tax in the current year, as well as penalties for early withdrawal.

Self-Directed Solo 401(k)s

You are not limited to the usual menu of mutual funds and other paper investments offered by most investment companies. By opening a solo 401(k) with American IRA, LLC, it is very easy to set up a truly Self-Directed Solo 401(k). This option opens a vast array of alternative investment options:

  • Real estate
  • Gold, silver, platinum and palladium coins and bullion
  • Farms and ranches
  • Private businesses, partnerships, LLCs and C corporations
  • Tax liens and certificates
  • Private banking and lending
  • Hard money
  • Land banking

And much more.

For more information about setting up your own Self-Directed Solo 401(k) plan, or about self-directed retirement strategies in general, visit us at www.americanira.com, or call us at 866-7500-IRA(472).