The Solo 401(k): The Best Choice for the Self-Employed

By Peter Rizzo

woman canning

As we enter the era of Independent Contractors and small business owners, it’s important to understand and utilize all the retirement savings benefits and investment options that are possible.

During the 2012 election, America’s investment fire was stoked when it was revealed that the value of Mitt Romney’s self-directed IRA was somewhere between $20 million and $100 million.  That revelation sparked an interest in self-directed IRA possibilities.

There are many types of IRA’s but lesser known is their sister platform: the self-directed Solo 401k.  This retirement plan is reserved for self-employed individuals that DO NOT have “non-owner” employees.  It gives corporate-like retirement benefits without the hassles and expense of corporate-like paperwork.

Traditionally, the only retirement plan available to self-employed workers was the SEP IRA which contains all the rules of a traditional IRA, but offers an increased contribution limit.

The Check Book Solo 401(k) increases the SEP contribution limit, but also adds a host of additional benefits, including being your own custodian.

This gives enormous advantage to those wanting to self direct the investment of their retirement funds. 

As most self-employed workers are more amenable to charting their own route, the self-directed Check Book Solo 401k can quickly seem like a made-to-order investment platform.

Here’s a quick listing of the specific benefits, which would most appeal to the proactive investor:

  1. Instant Check Book Control from a LOCAL checking account
  2. The ability, as Custodian, to direct and approve unlimited investments
  3. Be able to add your spouse’s IRA to your plan for more firepower
  4. Defer up to $58,000 of Self Employment Income from your taxes
  5. Personally borrow up to $50,000 from the Solo 401(k)
  6. Lower fees and maintenance costs

The SEP IRA still has the name recognition as the self-employed retirement account choice for the self employed. However, the need to defer more income and the desire to have control are some of the reasons the Self Directed Check Book Solo 401k is quickly becoming the new choice for self employed or small business entrepreneur

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