Self-Directed Solo 401(k) Plans are a Powerful Option for Gig Economy Workers

The so-called “gig economy” is here to stay. According to the Bureau of Labor Statistics, about 10.6 million workers cite contract work as their primary source of income. And nearly all of these workers are going to have to retire eventually. Furthermore, with the IRS planning to focus more on tax compliance for gig economy workers, many of these gig economy workers will soon be looking for some tax deductions to shelter some of that income that they are redirecting to retirement savings.  For those gig economy workers, the Self-Directed Solo 401(k) is a potent option.

The Self-Directed Solo 401(k) is a defined contribution small business retirement plan specifically designed for sole proprietorships and small businesses with just one employee – the owner, or the owner and his or her spouse.

These plans allow gig economy workers to shelter substantial amounts of income through tax-deferred contributions. The worker, acting as his or her own employer, can shelter even more income from taxes via employer “matches.”

Normally, contributions to these Self-Directed Solo 401(k) plans are tax deferred, and the money within them grows tax-deferred, as well, until retirement. There is no current tax liability for dividend income, capital gains or rental income from real estate 401(k)s.

When the account owner/beneficiary takes money out, it’s counted as ordinary income tax. Withdrawals prior to age 59 ½ are subject to a 10 percent early withdrawal penalty, except for those leaving the work force who are age 55 or older.

Unlike IRAs, Self-Directed Solo 401(k)s do not really have specific exemptions for “hardship withdrawals” that allow workers to escape the 10 percent early withdrawal penalty. But they do have other benefits that are very useful to gig economy workers and their families:

  • Much higher contribution limits.
  • Expanded asset protection. The IRS can levy an IRA. But even the IRS cannot crack open a 401(k) account, which is technically not the beneficiary’s asset. These funds are held in trust for the beneficiary – an important distinction.
  • Greater creditor protection
  • Self-Directed Solo 401(k) plans can be designed to allow loans from the plan, which you can use any way you see fit. You just have to repay the loan, or it will be considered a distribution and subject to applicable taxes and penalties.

Self-Directed 401(k)s

For those interested in self-directed retirement investing, which enables investors to leverage the tax advantages of retirement accounts in a wide variety of alternative asset classes, the Self-Directed Solo 401(k) is an ideal choice for these workers– especially for real estate fans. The Self-Directed Solo 401(k) is the only tax-advantaged account that can shelter investors from unrelated debt-financed income tax. This tax is generally applicable to IRAs in which the investor has employed leverage to buy assets. Income and gains are taxable in IRAs to the extent they are attributable to borrowed funds. But the 401(k) structure is different. This particular tax is not applicable. So, if you have a mortgage on some real estate within your 401(k), you can shelter the entirety of the income and capital gains from this tax, and allow all of it to continue to compound, tax deferred.

Self-Directed Roth 401(k)s

 The Self-Directed Solo 401(k) also supports a Roth option. This means your contributions are after tax – but all the subsequent growth is tax free, provided you leave the assets in place at least five years. Employer matching contributions are still treated on a tax-deferred basis, but all of your own employee contributions can compound tax free until retirement – and you can even pass them on to the next generation.

Can you qualify for a Self-Directed Solo 401(k)?

If you are a gig economy worker or small business owner, you qualify for a Self-Directed Solo 401(k) if you have income from that business, and if you have no full-time employees other than yourself and your spouse.

Self-Directed Solo 401(k) contribution limits

 Self-Directed Solo 401(k) plans potentially allow you to shelter up to $56,000 in income from current taxation.

  • Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit:
    • $19,000 in 2019, or $25,000 in 2019 if age 50 or over; plus
  • Employer contributions up to:
    • 25% of compensation as defined by the plan, or
    • Self-employed individuals have to make a few extra calculations to account for the effect of Social Security taxes. See this IRS page for details.

Of course, as your own employer, you can set your employer contribution level to whatever you want, and can afford, up to plan limits.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

Self-Directed Solo 401(K)

When saving for retirement, many people use a Self-Directed Solo 401(K) plan. This plan is designed particularly for small businesses which employ only themselves and their spouse.

Since passage of the Economic Growth and Tax Relief Act of 2001 (EGTRRA) Solo 401(K) plans became a much better choice for sole proprietorships. This law allows one to reap all of the benefits of Traditional 401(K) plans with a number of significant advantages.


The Self-Directed Solo 401(K) allows you to put aside more money for retirement

Under the 2018 rules, a Traditional IRA only allows someone to contribute a maximum of $5,500 annually until the age of 50 or $6,500 50+. However, a Self-Directed Solo 401(K) is more generous. Under the age of 50, the Self-Directed Solo 401K) plan allows you to contribute a maximum of $18,500 annually, and $24,500 each year after then. Perhaps the most significant advantage to a Solo 401(K) is the permitted profit-sharing contribution. Your business can also make a profit-sharing contribution of 20%, until a combined maximum limit of $55,000 is reached. After the age of 50, a $6,000 “catch-up” contribution can be added which increases the combined maximum amount to $61,000. If your spouse also contributes to the business, you can both contribute funds into your own accounts, which effectively doubles all of these limits.

Another benefit of a Self-Directed Solo 401(K) is a Self-Directed Roth IRA Option, which allows you to make after-tax contributions, unlike the Traditional Self-Directed 401(K) which only permits pre-tax contributions.


Eligibility Requirement for a Self-Directed Solo 401(K)

In order to qualify for a Self-Directed Solo 401(K), your business may have no other full-time employees besides you and your spouse. The business also must pay you a salary or wage as an individual.  The deadline for establishing a Solo 401(K) plan is the last day of your business’s tax year (December 31, for a calendar tax year). However, if the business is incorporated, you would probably want to form your Self-Directed Solo 401(K) early in the year because you cannot contribute any income which is not earned that year before the Solo 401(K) was formed.


Permitted Investments for a Self-Directed Solo 401(K)

Your Self-Directed Solo 401(K) plan can invest in almost anything. This allows you to both diversify your investments or and maximize returns – whichever is more important to you.


Tax Advantages of a Self-Directed Solo 401(K)

If you invest funds from your Self-Directed Solo 401(K) in real estate, there are significant tax advantages. When purchasing real estate, you can use nonrecourse leverage which avoids UDFI rules and is exempt from UBTI taxes. This is a substantial savings, as the UBTI tax is approximately 40% for 2018.

There are also tax deductions which can be claimed when using a Self-Directed Solo 401(K). Because you are paying for the Solo 401(K) with business funds, you could claim the cost of the plan as a tax deduction.


You can borrow money from your Self-Directed Solo 401(K)

Unlike many other retirement plans like Self-Directed Traditional IRA plans, which are forbidden from making loans, you can borrow money from your Self-Directed Solo 401(K). This can be up to $50,000 or 50% of your account value. There are no restrictions on the use of these funds. An additional benefit to this type of loan is the interest rate, which is essentially 0%, since you are both the lender and the borrower.

For more information on Self-Directed IRAs or Self-Directed Solo 401(K)s, call us today at 866-7500-IRA (472) or visit us at

Baby Boomer, Gen X Retirement Saving Inadequate, Study Says

When it comes to retirement saving, the Baby Boomer generation is in trouble.

Despite many of them now entering retirement, the majority of those born between 1946 and 1964 report having less than $250,000 in retirement assets. Only about 1 in 3 Boomers has that much saved up – leading to a retirement income shortfall of between $3,864 and $12,072, according to research from the Insured Retirement Institute.

And things are not looking too great for Gen Xers, either. According to the Insured Retirement Institute’s (IRI) fourth biennial report on Generation X, about 4 in 10 members of this generational cohort do not have money saved for their retirement. Despite an overall improvement in the economy, this represents a deterioration of about 5 percentage points from two years ago.

Of those with retirement savings, about 6 in 10 have saved less than $250,000. On the other hand, the percentage of those who have saved at least $250,000 or more has nearly doubled over the same time frame, rising from 12 percent in early 2016 to 23 percent in 2018.

According to the IRI, about 60 percent of Generation X respondents report being generally confident they will have enough money saved for retirement. Their top three economic concerns are changes in Social Security (66 percent), higher than expected health care expenses (64 percent) in retirement and running out of money (59 percent).

Ultimately, people across the generations need to get serious about putting money away.

Use “Catch-Up Contribution Limits”

The Baby Boomers and the oldest of the Generation Xers can both take advantage of “catch-up contribution” limits, available to those ages 50 and older. Congress anticipated the need for older Americans to sock more money away as they enter their peak earning years and their children have reached adulthood.

For Self-Directed IRAs, individuals age 50 and older can put an additional $1,000 away each year in combined Roth IRA and Traditional IRA contributions – over and above the normal $6,500 annual limit. Some limitations apply for those at higher income levels.

Older Self-Directed 401(k) beneficiaries can also increase salary deferral contributions. As of 2018, those ages 50 and older can contribute an additional $6,000 per year to employer-sponsored Self-Directed 401(k) plans, on top of the generally applicable $18,500 contributions, for a total potential employee contribution of $24,500 per year.

Similar provisions also apply to 403(b) plans, the federal Thrift Savings Plan and many Section 457 deferred compensation plans for public employees. They also apply to Self-Directed 401(k)s and small business Self-Directed 401(k)s.

Those turning 50 and older this year should consider taking full advantage of these more generous tax-advantaged compensation limits.

Working longer

Many Americans will have little choice but to stay in the work force longer and put off retirement. This means more years of earning an income, and more years of potential retirement contributions and compounding within retirement accounts. It also means higher monthly Social Security benefits, if you can put off collecting Social Security until you reach full retirement age.

Staying in the work force also means you do not have to stretch your retirement income over as many years. With today’s advances in health care and nutrition, it has grown commonplace for Americans to live into their late 80s and 90s. Taking income out of your portfolio for 10 years rather than 20 years can make a big difference in the sustainability of your retirement income.

For more information on getting started with Self-Directed IRA investing, call American IRA today at 866-7500-IRA (472).

Self Directed Solo 401k – Get the Most Value Out of It

It’s no wonder that so many among the self-employed are turning to self-directed retirement accounts like the Self Directed Solo 401k to pave the way to a financially independent retirement.

Looking around – unstable stock markets, questions about monetary policy, worry about consumer prices – it’s not hard to see why so many Americans are worried about retirement. They’re not sure that all of the familiar institutions will be around to take care of them when they get old. These worries also apply to small business owners and entrepreneurs – the very people who help the economy run.

But just because you’re aware of accounts like these doesn’t mean you’re necessarily getting the most use out of them. If you’re going to effectively plan for retirement, you’re going to have to know the makeup of these accounts, their restrictions, and how to take advantage of their benefits to squeeze the most investment value from your Self Directed Solo 401k. Here are a few tips for accomplishing just that:

Knowing the Benefits of the Self Directed Solo 401k

If you’re new to the concept of having a 401k on your own, then you need to know the basic benefits. You’d be amazed at what you can accomplish when using this kind of retirement account:

  • Annual contributions can be as high as $53,000, allowing you to go far beyond what’s typically allowed in, say, a Roth IRA. If you’re already over the age of 50, you get a “catch-up” contribution that’s as high as $6,000.
  • You can borrow from this account for any purpose, which helps if you have the cash flow to pay off a loan but need some additional capital. You can borrow up to $50,000 or 50% of your account value—whichever is less.
  • “Checkbook control:” You might have the option to exercise what’s known as “checkbook control” over these funds, which allows you a high degree of financial freedom. If you work with American IRA, for example, we would essentially serve as the record keeper.
  • Through self-directing, you’ll have access to a number of investment types, including real estate, precious metals, tax liens, limited liability companies, and more.

Needless to say, most investors who need to put away a lot of money for retirement see these benefits and advantages and know immediately that a Self Directed Solo 401k is for them. But is it for you? Let’s take a look at your investment style.

Your Investment Style: Does it Fit?

Many entrepreneurs who are self-employed and eligible for this kind of retirement account already have an independent streak in them; they like living life on their own terms and being in control of their financial destiny. For that reason alone, many of them consider the Self Directed Solo 401k to be exactly what they were looking for.

One of the most obvious benefits of this retirement account is the high annual contribution limits. People who have a lot of money to put away need this kind of benefit in order to get the most from their retirement account; if a different type of investment account like a Roth IRA hasn’t been “cutting it,” then this kind of 401k might be exactly what the retirement doctor ordered.

If you think that this kind of retirement account might be what the retirement doctor ordered for you, then you’ll want to get in touch. You can read more about these retirement accounts or simply call us at 1-866-7500-IRA (472) to learn more about these accounts and how they might be able to help you implement a retirement strategy that makes sense for you.

Now’s The Time to Set Up a Self-Directed 401k

If you’re a small business owner, sole proprietor or independent consultant, now’s the time to think about self-directed 401Ks.

That’s because unlike IRAs, you don’t have until April 15th of next year to contribute to your Self-Directed 401K plan for tax year 2015. For most business entities, your real deadline to make 2015 contributions is March 15th, 2016. However, if you are deferring self-employment income rather than the income of a corporation or LLC into a 401(k), you can contribute until April 15th for tax year 2015.

But you can only make contributions for tax year 2015 if you already have a plan set up. And the deadline to get a new plan set up is not March 2016, but the end of the year.

How Much Can You Contribute?

Solo 401(k)s, sometimes called ‘individual 401(k)s, are a little different than IRAs and SEP IRAs. With Solo 401(k)s, you are at once the employee and the employer. So the law allows you, as an employee, to defer up to $18,000 of income, or up to $24,000 if you are age 50 or older in so-called ‘catch-up; contributions.

On top of that, as your own employer, you can have your business kick in up to 25 percent of compensation (as defined by the plan you set up). Combining the two, you can actually contribute up to $53,000 for the tax year, or $59,000 if you are age 50 or older.

But you can’t contribute for this year unless you have your Solo 401(k) plan up and running, by the end of the year.

The deadlines for Self-Directed 401K owners are the same as those for 401(k)s, generally.

Who can establish a Solo 401(k)?

Generally, you can establish a Solo 401(k) if you are a sole proprietor, you own a partnership with your spouse, or you own an S Corporation with no eligible employees other than yourself and your spouse, or if you are an individual with self-employment income.

If you are considering adding employees in the next year or two, besides your spouse, the solo 401(k) plan may not be the best plan for you.

How do you benefit?

Contributing to a solo 401(k) allows you to defer taxes on every dollar you can contribute, up to a cap of 25 percent of the compensation of every participant. Normally that is just you, or you and your spouse.

In addition to tax deferral, the 401(k) structure is a very potent shield against the claims of creditors, who typically cannot seize assets within 401(k)s and other employer pension plans. Protections are somewhat less for inherited IRAs, according to recent case law.

You can also set up your solo 401(k) to allow for borrowing from the plan, if you so choose. Usually, you can borrow up to 50 percent of the assets in your plan for any purpose you choose. Just pay yourself back, along with interest, within 5 years. If you don’t pay off your loan from your 401(k), the IRS will deem you to have made a taxable distribution, and you may be responsible for interest and penalties on the unpaid balance.

American IRA, LLC is a leading national administrator for Self-Directed 401K accounts. Our services allow you to liberate your 401(k) from the investment and mutual fund companies, and provide you the freedom to direct your investments into any number of other asset classes that can help you increase potential returns, diversify your portfolio or reduce your risk – or some combination of the three.

Again, if you don’t already have a solo 401(k) set up, and you’d like to shelter significant sums of income from taxation for 2015, time is running out. Act now to get your plan set up in time for you to contribute.

For more information, visit us online at and download our exclusive guide to self-direction and solo 401(k)s. Or give us a call today at 866-7500-IRA(472). We look forward to hearing from you.






Invest in Real Estate with your Self-Directed 401k

puzzle_piece_house_outline_800_wht_4232Many people want to invest in real estate “if I could only find the cash for the down payment on a property or two.” But for many would be investors – the answer to getting started in direct real estate investment is right under their nose: You can use a Self-Directed 401k to invest in real estate.


For Employees

If you don’t own your own company so you can become the sponsor of your own Self-Directed 401k plan, you have a couple of options:

Borrow. If your plan allows, you may be able to borrow up to $50,000 or 50% of your account value (whichever is less) to invest in real estate in a taxable account. If you go this route, understand you only have five years to repay the loan. Otherwise it’s considered a taxable distribution and if you are under age 59½, may generate penalties to boot.

Execute a Rollover. If it’s a 401k from an old employer, or if your plan allows in-service rollovers, you may consider rolling over some or all of your 401k balance to your own IRA. There you have a couple of options: You can pay income taxes on the rollover and start a Roth IRA (thereby gaining the advantage of tax-free growth forever in exchange for a near-term tax hit), or continue with the tax-deferred approach.

In this case, in a traditional IRA, your real estate investment will (hopefully) grow tax-deferred. Rental income is also tax-deferred – just reinvest it within your IRA until you are ready to take distributions. Required minimum distributions, of course, still apply starting April 1st of the year after the year in which you turn 70 ½. Distributions are taxable as ordinary income. Any gains attributable to money borrowed from outside the IRA may also be taxed under unrelated debt-financed income tax rules.

In the case of a Roth IRA, since you already paid income taxes on the money, growth and rental income are tax-free, as long as the money remains in the Roth at least five years. There are no RMDs to worry about either.

[tweetthis]Getting started in direct real estate investment: You can use a #SelfDirected401k to invest in real estate.[/tweetthis]

If you own a business

If you own your own business, setting up your own Self-Directed Solo 401k for the purposes of owning investment property may be a compelling option for several reasons:

  • Unlike IRAs, 401k’s have no income qualification requirements. You can make a contribution to your own solo 401k, regardless of how high your income is. And if you have no other qualifying employees other than yourself and a spouse, there are no top-hat or discrimination rules to worry about, either. The solo 401k can be optimized for your benefit, to maximize the allowable contribution.
  • You can still set up the account to allow for borrowing.
  • Assets in a solo 401k enjoy substantial creditor protection
  • You may be able to avoid unrelated debt-financed income tax by holding real estate within a 401k rather than an IRA. Speak with your tax advisor for more information.
  • You can contribute much more to a solo 401k plan than you can to an IRA. While the IRA limits you to $5,500 in new contributions each year ($6,500 for those over 50), employees can contribute up to $18,000 in elective deferrals in a 401k. Meanwhile, the company can kick in between 20 and 25 percent of total compensation (up to a $265,000 compensation cap) on contributions. All told, you may be able to contribute up to $53,000 per year, tax-deferred, or tax-free if you choose to use a Roth option and contribute with after-tax money. ($59,000 if you are over 50, thanks to the effect of ‘catch-up contributions).

For more information, visit us online at, or call us for a free consultation at 866-7500-IRA(472).


Five Reasons Entrepreneurs Choose Self-Directed Solo 401K Plans

If you’ve ever wanted to “invest like an entrepreneur,” then there’s one simple course of action that you might consider: the Self-Directed Solo 401K plan.

These plans are available for sole proprietorships, unincorporated and incorporated businesses and more, and they’re designed to provide you with many of the benefits of a Solo 401K plan without having to go through your employer in order to secure it.

But why do entrepreneurs choose the Self-Directed Solo 401K plan so often? The answer is multi-faceted, and we wouldn’t be able to provide you with a single answer. That’s why we’ll list five reasons entrepreneurs are so enthusiastic about these retirement plans:

Reason #1: More investment control. You might have noticed the phrase “Self-Directed” in “Self-Directed Solo 401K.” That’s not there by accident. A Self-Directed IRA offers you plenty of flexibility for choosing your financial future, giving you the responsibility to choose which investments are made. If this sounds intimidating, remember that many investments aren’t very difficult to make once you have a little know-how.

Entrepreneurs like being in charge of their employment future, so it stands to reason that they like being in charge of their financial future as well. That’s one reason Self-Directed IRAs are so popular with the go-getter type. The only question you have to ask is: do you feel the same way?

Reason #2: Higher contribution limits. If you have a different type of IRA, such as a Roth IRA, you might notice that your contribution limits are a little, shall we say, modest. With the Self-Directed Solo 401K, contributions limits are much higher, allowing you to put aside a more significant portion of your income towards retirement—and as any savvy investor knows, the more you invest, the more potential there is for growth.

Reason #3: They’re great for older entrepreneurs who want to “catch up.” You don’t have to be 20 years old to start a successful retirement portfolio that will grow over time. In fact, many entrepreneurs and individuals well past fifty years old will utilize the Self-Directed Solo 401K in order to take advantage of higher contribution limits and put their retirement portfolio in “head start” mode. You may want to look into your potential contribution limits if you’re at age 50 or over.

Reason #4: Flexibility. When you self-direct your retirement account, you’d be surprised at the amount of flexibility afforded to you. You’ll have a greater say over your investment and you’ll be able to control it directly, which ensures that you can construct the overall retirement portfolio that you’re after. Flexibility means having the range of options available to you to make the best choice—and sometimes these choices simply aren’t as easy to make if you don’t self-direct the account.

Reason #5: To build a retirement portfolio you can count on. With social security feeling “up in the air” for future generations, it’s entirely prudent to establish a hefty, generous retirement portfolio that will help ensure that your finances are protected for years and decades to come. Although entrepreneurs can have unstable incomes, the one stable portion of their financial life can be retirement. If you want to make that choice, then you should also consider a Self-Directed Solo 401K.

Learning more about the Self-Directed Solo 401K isn’t difficult—simply browse our site here and find what you need, or contact us at 866-7500-IRA(472). You’ll be able to find out more information about these intriguing retirement accounts and find out if you’re the right kind of fit and, most importantly, whether or not you potentially qualify for a Self-Directed Solo 401K.

Self-Directed IRA Plans for Small Business Owners

ereader_news_800_wht_8849There’s a lot of press out there about the Self-Directed IRA.

The problem with the IRA, however, is that while you can roll over as much money that’s already in other qualified retirement plans as you as you want you can only contribute a relatively small amount of new money each year. In 2015, most people can contribute up to $5,500 into a traditional or Roth IRA, provided they meet the income qualifications (double that amount to account for spousal IRAs, in the case of married couples where one spouse has less than $5,500 in earned income.

There is a special ‘catch-up’ provision that allows individuals age 50 or older to contribute an additional $1,000 per year. But that still leaves Self-Directed IRA holders with a relatively small amount of allowable IRA contributions each year.

Many of our clients find that while they are very attracted to the idea of taking personal control over their retirement investments rather than delegate it to some mediocre mutual fund or money manager they’ve never met, they would like to contribute substantially more money to the strategy.

Fortunately for them, there’s a solution: the option of self-direction also extends to a number of other retirement plans.

Let’s take a look at some options:

Simplified Employee Pension plans (SEPS)

gold_nest_egg_ribbon_800_wht_2725(1)These plans allow employers to make substantial contributions toward employees’ retirement security, but they are much easier to set up than large 401(k) and other plans. These plans are very popular among owner-employees of very small companies with no or few full-time employees other than the owner, because they allow for a contribution of up to 25 percent of compensation, or $53,000 per year (whichever is less). In most cases, that is substantially more than an IRA alone will allow.

Moreover, contributions to a SEP do not negatively affect your eligibility for contributions to an IRA. You can do both.

Solo 401(k) Plans

These are 401(k) plans that are specially designed for very small companies with just one or two owner/employees – commonly a married couple. These plans allow for both employee and employer contributions, and in many cases allow for even greater allowable contributions than the SEP. These plans are much easier and cheaper to establish than traditional pension plans and full-scale 401(k) plans, and also allow for substantial asset protection against the possible claims of creditors.

[tweetthis twitter_handles=”@iraexpert” hidden_hashtags=”#SelfDirectedIRA”]There’s a lot of press out there about the Self-Directed IRA…[/tweetthis]

The Solo 401(k) is also available in a Roth option. That means you can make contributions on an after-tax basis, and assets grow free of federal income taxes for as long as you live. They are also not subject to required minimum distributions.


These plans are sort of a 401(k) lite, for employers with fewer than 100 businesses. business_woman_holding_briefcase_17207Employees can make pretax contributions to these plans, and employers can make matching or flat-rate contributions on employees’ behalf (subject to certain rules).

We have hundreds of small business owner clients nationwide that use accounts like these to help them direct tax-advantaged retirement dollars at potentially lucrative but unconventional IRA assets like direct ownership of real estate, gold and precious metals, tax liens and certificates, farms and ranches, partnerships and LLCs, closely held businesses, foreign assets, oil and gas, non-traded securities, private placements, venture capital and much more.

If you think you can benefit from this kind of freedom within your retirement investments, and you want to take more control over your own retirement assets, please call us right now at 866-7500-IRA(472). Or visit us online at for much more information about all aspects of self-directed retirement investing.







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