It’s easy to automate your finances when you receive a regular paycheck from an employer with an HR department and you have a 401(k) plan provided by them. And it’s great. You automatically put money that you never see away, and it builds in your retirement account. But what if you are more independent than that? What if you are using a Self-Directed Solo 401(k), or what if you are self-employed?
Automating your finances when you are self-sufficient is a little trickier. But that does not mean it cannot be done. Here are just a few of the ways you can use your Self-Directed Solo 401(k) investment plan to automatically invest for you:
What You Need to Know About Self-Directed Solo 401(k) Automation
Before you automate anything, you are going to have to know a list of prohibited transactions to ensure that you do not automate something you do not want to happen. Some of the most common prohibited transactions include the mixing of personal funds and 401(k) funds, such as living on a property owned by the 401(k). You also could not purchase a real estate property and have your son or daughter live there to help build the family wealth.
You will also need to know the limits of automation. While it would be great to take a Self-Directed Solo 401(k) plan and never have to manage it, the nature of self-direction means that you will have to make decisions. And that’s fine, as long as you know what your goals are.
Automating Your Self-Directed Solo 401(k)
The easiest and most direct way to automate your Self-Directed Solo 401(k) is by contacting your provider and having regular amounts of money taken out of your checking account and transferred to the IRA in the form of a monthly contribution.
You will want to make sure that your monthly contributions will land your yearly contributions under the Self-Directed 401(k) limits, but there’s good news here: Solo 401(k) contribution limits are high. You can find more about Self-Directed Solo 401(k) limits (and any one-participant 401(k) plans) at the IRS website.
Even if you are not sure about your individual contributions just yet, it’s a good idea to get started with monthly contributions just to build up funds. More importantly, you will build up the habit of setting aside money for retirement. Once you get used to the idea that some of your money is coming out every month, you won’t miss it. You won’t notice a decreased quality of life, but you will be building wealth every month.
Monitoring Your Automated Self-Directed Solo 401(k)
It’s easy to automate Traditional IRA and 401(k) investments like stock market investments. And we know the appeal of a Self-Directed Solo 401(k) is that you will be able to buy all sorts of other assets, from real estate to precious metals to private company stock. Part of the responsibility of owning this type of investment is that you’ll be in charge of making investment decisions yourself, rather than deferring to a mutual fund manager.
That makes automation a little trickier. But it does not mean you cannot do it. You can simply build up your Solo 401(k) fund via automation until you are ready to make an investment within the fund. All you have to do is set calendar reminders to review your funds, your asset allocation, and consider what you want to do with all of the money that’s been piling up automatically.