The Solo 401(k) is perhaps one of the greatest financial tools for investing in your future. It's a self-administered, self-trusteed, self-directed Solo 401(k) that gives you the ultimate in flexibility and possibilities. If you're self-employed this may be a good option for you. Here's why.
What is it?
It's a qualified retirement plan for people who run their own business that has no employees. It allows you to invest in anything allowed by law including real estate, mortgage notes, private businesses, precious metals, and more.
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The Solo 401(k), if you’re eligible, can be a better vehicle to use for investing in real estate than a traditional IRA (yes, you can use IRAs to invest in real estate too).
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The Solo 401(k) can borrow funds to purchase real estate with a non-recourse promissory note. This means the lending institution can use only the property that secures the note as collateral.
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You can build a tax-free Roth account inside the Solo 401(k).
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You can use the Solo 401(k) to invest in things such as: raw land, pre-construction property, residential property, multi-family units, commercial property, apartment buildings, and condominiums.
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You may not use your Solo 401(k) to purchase your primary residence. You also cannot purchase property that will be used by you, the accountholder. But you can invest in income-producing property and grow your wealth.
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Your Solo 401(k) can partner with other people’s Solo 401(k) or IRA to co-invest.
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When the Solo 401(k) buys real estate, the title must be held in the name of the Solo 401(k).
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Rental money from the property that’s been purchased by the Solo 401(k) must go back into the same account.
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It’s vital to understand what will constitute a Prohibited Transaction (PT). You can learn more at www.UnlimitedInvesting.com.
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You can transfer anything that can be transferred into an IRA into a Solo 401(k) and there are no limitations on transfer amounts.
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Yes, you can be employed and still use a Solo 401(k) as long as you are also self-employed in addition to your other employment. Seek advice from your accountant about whether you have business activity that can be considered self-employment earned-income.
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Maximum contribution limits for 2009 are as follows: $49,000 per year. For those over the age of 50, you can use the additional “catch up” contribution of up to $5,500 per year. And if your spouse earns income from your company, he/she can also contribute $49,000 per year as a participant—that’s in addition to your contributions. (Sure beats IRA contribution limits of $5,000 or $6,000 for those over age 50!).
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You can contribute annually $16,500 (or $22,000 if over age 50) of the $49,000 annual contribution limit to your Roth account (these funds are not taxed when later distributed). Learn more from the IRS Publication 560.
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Unlike with an IRA, Unrelated Business Income Tax (UBIT) does not apply to earnings from leveraged real estate investments.
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Depending on where you set up your Solo 401(k) you may have limitations. Check out www.Nabers.com. This company offers maximum benefits with its plan documents so that account holders’ available investment choices are not limited.
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You are the plan participant and the trustee of the Solo 401(k). However, many retirement account administrators don’t offer this in their plan documents. Make sure you ask questions. This will help keep plan administration fees low as well as ensure that you don’t run into unnecessary restrictions.
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Good record keeping is a must. Keep Roth funds in a separate bank or brokerage account. You will need to file a 5500-EZ form that reports the value of your plan assets. Your tax accountant can help with this.
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Administrative fees for the Solo 401(k) vary; so shop around.
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Make sure you have checkbook control. Having checkbook control helps ensure that you can invest in all legally allowable investments as well as avoid unnecessary transaction fees on things such as foreign investments. Plus, having checkbook control gives you the ability to take action immediately when an investment opportunity comes up. Because 401(k) plans do not require a custodian, an LLC creation is not necessary in order to enjoy checkbook control.
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You can borrow up to 50 percent of your account value or $50,000 (whichever is less) from your Solo 401(k) for anything. You’ll pay interest of 1 percent over prime rate, but it all goes to your own retirement account instead of a bank.
 Phoebe Chongchua | |
| About the author: | |
Phoebe Chongchua is an award-winning journalist who appears on TV, in print, and on the Internet. She's a former ABC affiliate News Reporter/Newscaster who founded Live Fit Magazine in 2004, recognizing how the journalism industry is rapidly moving online. The magazine has evolved frrom producing content only for LFM to producing much-needed video feature news stories and documentaries for companies and associations. Phoebe discovered an unfulfilled niche market and expanded LFM in order to meet the needs of a growing marektplace. Her clients are happy she did! Live Fit Magazine produces video news stories that entice viewing audiences to watch the video, spread the message, buy the product or visit the establishment. It's a creative, credible approach to marketing companies, products, and services. Few companies offer what Live Fit Magazine can do for your company in a single feature video story. Phoebe works with clients to seamlessly integrate their newly produced video into their current marketing materials. She offers expert advice on new marketing strategies and call-to-action campaigns. Her innovative efforts keep companies positioned for success and their customers regularly watching new and informative videos.
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it's amazing...my CPA didn't even know about it...so much more than i ever knew that i could invest in.
!joomlacomment 4.0 Copyright (C) 2009 Compojoom.com . All rights reserved."
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Eating a whole-food, plant-based diet does a body good! Phoebe will show you how to lose weight, eat healthy, and love your life! Join her for fitness videos, living well articles, healthy cooking tips, and recipes, click here to visit Phoebe Chongchuacom.
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