Many people are familiar with the concept of 401(k) investing. Because so many people get these plans through their place of employment, it is often simply a matter of filling out a form and having money taken out of an account every paycheck. This is done automatically. But not everyone has that kind of employer to rely on. For other people, a Self-Directed Solo 401(k) can be a powerful alternative. Not only is this kind of investment structure a great way to plan for retirement, but it includes lots of options for expanding one’s retirement portfolio through diversification. Here is what you will need to know about investing in a Self-Directed Solo 401(k).
- A Self-Directed Solo 401(k) is for “solopreneurs.” You should be working on the business yourself—or with a spouse—but not have any full-time employees in order to use a Solo 401(k). That is one of the reasons it is “solo”! It does not matter if your business entity is a sole proprietorship or an LLC; it is still going to be something designed for people who are in business for themselves and do not have a large number of employees. Keep in mind that there is no limit to how much revenue your business can generate in this type of structure, so long as you retain this “solopreneur” status.
- A Self-Directed Solo 401(k) plan features high limits. High contribution limits allow you to have more flexibility when you invest in retirement. As of this writing, for example, the contribution limits for a Roth IRA—a great retirement account—are only $6,000, depending on your circumstances. For anyone who wants to have an aggressive retirement investing plan, this is not much. This is especially true if you are going to put aside a large amount of money every month for your investments.
- Maintenance is easy. Many people worry about maintaining something like a Self-Directed Solo 401(k) plan because they are not used to maintaining one for themselves. But when you work with a Self-Directed IRA administration firm like American IRA, you will find out just how easy it can be. American IRA will handle much of the paperwork and administration, serving as a “custodian” for the account while you get to direct where the investments go.
- You can invest in all sorts of different retirement assets. Rather than focus exclusively on stocks, a Self-Directed Solo 401(k) plan is great for expanding the amount of choices you have in your portfolio. For example, you can invest in real estate, private companies, and private notes. This will help you expand out of the stock market for increased diversification across asset classes, going beyond what most people believe is a “well-diversified” portfolio for retirement.