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The latest on solo & self-directed 401K LLC

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According to recent statistics one of the main factors and benefits U.S. job seekers consider when accepting a job in 2021 is compensation, this includes a 401k.

In the United States, a 401k plan is a defined-contribution pension account sponsored by an employer and defined in section 401k of the Internal Revenue Code. Employee money is deducted directly from their paycheck, and the company may match it.

Self-Directed 401K
A self-directed individual retirement account (SDIRA) is a sort of IRA that allows you to hold alternative investments that are generally restricted in traditional IRAs. The account is managed by the account holder, although it is administered by a custodian or trustee. This is why the term “self-directed” was coined. The option to use your retirement savings for nearly any form of investment is one of the advantages of a self-directed IRA (including real estate). Read more about the advantages on this website.

Solo 401k plan
A Solo 401k plan is an IRS-approved retirement plan for business owners who do not hire anyone other than themselves and possibly their spouse. The individual 401(k) plan, often known as a “one-participant 401(k) plan,” is not a new form of plan. It’s a standard 401k plan with only one participant. Unlike a Traditional IRA, which enables an individual to contribute only $6,000 per year or $7,000 if they are over the age of 50, a Solo 401k Plan allows participants to contribute up to $62,000 each year.

There was no compelling reason for an owner-only business to establish a Solo 401k Plan before the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) became effective in 2002 because the business owner could generally receive the same benefits by adopting a profit sharing plan or a SEP IRA. After 2002, EGTRRA made it possible for a sole proprietorship to save more money for retirement and operate a more cost-effective retirement plan than a traditional IRA or 401(k).

Self-Directed IRA LLC vs. Solo 401k
There are a number of options unique to Solo 401k plans that make them a considerably more appealing retirement option for self-employed individuals than a Self-Directed IRA.

Reach your Maximum Contribution Amount Quicker
A Solo 401k Plan allows employees and profit-sharing participants to contribute, whereas a Self-Directed IRA has a far smaller yearly contribution limit. A plan participant under the age of 50 can make a maximum employee deferral contribution of $19,000 under the 2019 Solo 401k contribution regulations. This sum can be earned either before or after taxes (Roth). On the profit sharing side, the business can contribute up to a combined maximum of $56,000, including the employee deferral, at a rate of 25% (20% in the case of a sole proprietorship or single member LLC).

An individual can make a maximum employee deferral contribution of $25,000 for plan participants over the age of 50. This sum can be earned either before or after taxes (Roth). On the profit sharing side, the company can contribute up to a combined maximum of $62,000, including the employee deferral, at a rate of 25% (20% in the event of a sole proprietorship or single member LLC). A Self-Directed IRA, on the other hand, permits an individual with earned income to contribute up to $6,000 per year, or $7,000 if the individual is above the age of 50.

Tax-Free Loan Option
With a Solo 401k Plan, you can borrow up to $50,000 or 50% of the value of your account, whichever is less. The money can be used for anything. Without triggering a banned transaction, a Self-Directed IRA holder is not able to borrow even $1 from the IRA.

Administration is simple.
For any plan with less than $250,000 in plan assets, there is no yearly tax filing or information reports with a Solo 401k Plan. The approach is both cost-effective and simple to administer. A simple two-page IRS Form 5500-EZ must be filed if a Solo 401k Plan has a value of more than $250,000. The IRA Financial Group’s tax professionals will assist you in filling out the IRS Form.

Final Thought
The solo 401k plan was created with small business owners in mind. There aren’t many other plans that offer more benefits than the solo 401k if you’re self-employed. Of course, this is a broad statement, and your own circumstances may vary.