Compare Self-Directed Solo 401k vs. Self-Directed IRA, and you’ll see that the former allows you to make significantly higher contributions. In 2023, annual contributions can go up to $66,000, with an additional $7,500 catch-up contribution for those over age 50.
Borrow from Your Self-Directed 401k (Tax- And Penalty-free)
• Suppose you need to fund or inject funds into your business. A Solo 401(k) Self-Directed plan lets you borrow up to $50,000 or half of your account value for any purpose – tax- and penalty-free. However, remember that loans must be paid back within five years.
• As a plan participant, you have the option to have checkbook control over your retirement savings funds. American IRA will then act as the record keeper for your self-administered 401k plan. This arrangement lets you sign and send checks easily when making investments.
• A built-in Roth provision is included in Self-Directed Solo 401(k) plans. However, unlike a Roth IRA, this Roth component does not restrict individuals with higher incomes. This means you can use a Roth plan to grow your funds without paying income taxes when you make withdrawals in retirement.
• When it comes to self-directed 401k plans, there’s no third-party custodian. You are the plan’s trustee, so you can enter into transactions or make investments independently. American IRA acts as the record keeper.
A Wealth of Investment Options
•You can invest in various investment vehicles, from real estate and limited liability companies to tax liens and precious metals. While there will be specific Solo 401k real estate and other investment rules to follow, this gives you the freedom to widen your portfolio.
Exemption from UDFI
• Unrelated Debt-Financed Income is a tax generated when an IRA or any tax-exempt entity earns any profit (like a rental income) from a financed property. However, if you make a Self-Directed Solo 401k real estate purchase, you can avoid paying UDFI taxes. Any earnings from the purchased property will grow tax-deferred.
•Creating a Self-Directed Solo 401 k plan allows you to roll over your old accounts with your former employers to your current account. You can also transfer funds from other retirement plans, including Simple IRA, SEP IRA, 403(b), and Traditional IRA.
Note: Only new Roth contributions are allowed in a Solo 401k; existing Roth funds can’t be transferred or rolled in”