As an owner of a business, choosing a solo 401k plan is an excellent way to save money for retirement. You have higher contribution limits than other options, including IRAs and there are other features you might need to take advantage of, such as the ability to take out a loan if your business has a down year. However, many business owners are still choosing traditional 401k plans that invest in stocks, bonds, and mutual funds. While this type of 401k is better than nothing, if you really want to make the most of your retirement, you should consider a self-directed solo 401k plan.
This kind of 401k plan, also referred to as a small-business 401k or an individual 401k, is a qualified retirement plan for anyone who owns or runs a business that has no employees. It has many of the same rules and benefits as an IRA, but you do not have to hire a custodian to manage your plan. You are the manager of your plan. You are in control of your investments, and they are not limited to the typical investments people place their money in when funding their 401ks.
Unique Benefits of a Self-Directed Solo 401k:
The single best benefit of a self-directed solo 401k is that you are not required to hire a bank or a trust company to serve as trustee of your account. There are no restrictions on who can be your trustee. This means, you can name yourself the trustee, which will not only save you money, but will give you peace of mind, since your money will be in the hands of someone you know won’t rip you off. It is far simpler to be your own trustee because you don’t have to tell another entity what to do with your money. You just write your check and purchase the asset you want.
Another benefit of the individual 401k is that you don’t have to establish an LLC to invest in one. Since you usually have to pay fees to your state to form an LLC, the absence of this requirement will save your business money. There are fewer administrative burdens associated with a solo 401k, making it a simpler fund in which to invest.
As mentioned above, a self-directed solo 401k plan has contribution limits that are ten times the limits of an IRA. You are able to contribute as much as $49,000 per year or $54,500 per year if you are over the age of 50. If you are married, your spouse can also contribute an additional $49,000 per year. These contribution limits mean you can save much more money for your retirement than you would be able to if you had an IRA instead. The more money you put away now, the more money you will have when you leave the workforce.
With a self-directed solo 401k, you are able to invest in assets not normally available to the average retirement account participant. The self-directed portion of the pan allows you to invest in real estate, private companies, and precious metals, all of which have a track record of decent profits over the long term. You are able to control where your funds are placed so that you have more control over the amount of money you will have when you retire.
Of course, this also means that you are opening yourself to more risk when you make the decisions about where to place your money. You are the only person who can make these decisions, so be sure to research your options before leaping into an investment. However, if you make wise decisions, your retirement years will be far better off than if you went with a traditional 401k without the self-direction option.
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