The Self-Directed Solo 401(k) has a lot of benefits, not the least of which is high contribution limits. And for that reason, we like to describe it in a different way than you might be used to.
Head over to our Self-Directed Solo 401(k) section and you will find that our team likes to call the Self-Directed Solo 401(k) something of a Self-Directed IRA on “steroids.” Why is this? It is essentially because it is such a powerful way to put a lot of money away for retirement in a hurry, which in turn means that there is plenty of potential for an investor to amass a lot of retirement wealth. But while contribution limits are high, it is just one reason overall.
The Added Benefits of a Self-Directed Solo 401(k)
It is not hard to tell, just by browsing this website, that one of the chief advantages of self-directing is that you get to pick your investment opportunities. That means that you can have access to a wealth of experience if you have it; for example, frequent real estate investors might like to build a Self-Directed IRA on their real estate investing knowledge. That is one way of looking at this account as an IRA on “steroids,” particularly with the higher contribution limits.
But there are other benefits as well. For starters, the high contribution limits. They are far beyond anything you might expect with a Self-Directed Traditional IRA, for example. If you have a large income and a lot of money to put away in a hurry, there is also an additional “catch-up” contribution provision within a Self-Directed Solo 401(k) that can expand these contribution limits even higher, depending on eligibility.
Another reason is that it may be possible for an investor to borrow up to $50,000 or 50% of the account value (whichever is less) for any purpose. These loans do have to be paid back within five years, but it is a nice amount of flexibility that can help investors feel comfortable that the money they are putting aside for retirement can be available in some form if they have an issue that needs addressing.
In other words, a Solo 401(k) can be more than just an ordinary retirement account. Its ability to collect a large amount of money in a short period of time can make it feel like a shortcut to retirement—provided that the investor self-directing it is able to oversee a smart portfolio.
Other Advantages to the Self-Directed Solo 401(k)
If the above advantages, were it, this would still be a tremendous way to invest for retirement. However, there are other advantages that are worth mentioning here:
- Easy administration. When you work with American IRA, for example, as the record keeper on the Self-Directed Solo 401(k), it is very easy to keep everything organized and in line, never having to wonder how your paperwork is doing.
- If an investor has self-employment activity and an absence of full-time employees, the Solo 401(k) plan might be available to them; it is not a stringent list of requirements and may be a list that you already meet!
In short, a Self-Directed Solo 401(k) can be a great way for the self-employed to feel like they have something more akin to a traditional retirement benefit plan. The difference is, they are funding it 100% themselves, rather than relying on matching. Other than that, there may be tremendous benefits.