The Self-Directed Solo 401k plan is an IRS-approved and qualified 401k plan designed for a self-employed sole proprietor, a corporation, or limited liability company.

The self-employed 401k participant can make contributions as both the employee and the employer resulting in very high contribution limits.

Our team likes to refer to the Self-Directed Solo 401k as a Self-Directed IRA on steroids! This is a very powerful tool with a wealth of benefits!

 Higher Contributions

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.

 Checkbook Control

• 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.

 Roth Provision

• 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.

 Easy Administration

• 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.

 Consolidate Accounts

•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”

The newly released 2022 contribution allows the business owner to wear two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both:

• (Employee)Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit:
  • $20,500 in 2022, or $27,000 in 2022 if age 50 or over;
  • $22,500 in 2023, or $30,000 in 2023 if age 50 or over; plus
• Employer non-elective contributions up to:
  • 25% of compensation as defined by the plan, or
  • for self-employed individuals, see link below

Source of contribution limits: www.irs.gov

To be eligible to benefit from the wealth of possibilities within a Self-Directed Solo 401k plan, investors must meet two requirements:

 The presence of self-employment activity.

 The absence of full-time employees.

Keep in mind if you and/or your spouse are the sole owner(s) of the business both can contribute to their individual accounts within the Self-Directed Solo 401k.

There are certain employees that you can employ which can be excluded from your plan:

 Employees under the age of 21 years old.

 Employees who work less than 1,000 hours in any year.

 Non-resident alien employees with no U.S. income.

Keep in mind that even if you do not qualify for this plan, we have many other plans that you do qualify for.