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Solo 401(k)
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Everything you need to know about the Solo 401(k).
What is a Solo 401(k)?
As the name implies, the Solo 401(k) plan is an IRS approved, qualified 401(k) plan designed for a self-employed individual or the sole owner-employee of a corporation. The Solo 401(k) plan is the most popular retirement plan for the self-employed.
Are all Solo 401(k) plans the same?
With a Solo 401(k) plan, the plan documents dictate the type of options you will have in your plan. For example, with a Self-Directed Solo 401(k) plan , you would be able to take advantage of all available plan options.
Which is Better? Solo 401(k) vs. SEP IRA
For small business owners, the Solo 401(k) and SEP IRA are the two best options. If you have no full-time employees, other than a spouse or partner, the Solo 401(k) is the preferred choice.
What is a Solo 401(k) loan?
Pursuant to IRC Section 72(p), a Solo 401(k) plan loan feature allows one to borrow the lesser of $50,000 or 50% of their account value and use the funds for any purpose. The loan is a five-year loan and payments must be paid quarterly using the “Prime” interest rate, as per the WSJ.
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What is a Mega Backdoor Roth Solo 401(k)?
The advantage of making after-tax contributions and employing the “Mega Roth” strategy versus a typical mix of employee deferral and profit sharing contribution is that you can make a dollar for dollar contribution of up to $70,000 or $77,500 for 2025 and convert all the funds to a Roth IRA without tax.
What are the most popular investments for the Solo 401(k)?
With the Solo 401(k), you can use your retirement funds to make almost any type of alternative asset investment, such as: real estate, investment funds, private businesses, Bitcoin, gold and hard money loans.
What makes the Solo 401(k) so popular with real estate investors?
Pursuant to IRC 514(c)(9), a Solo 401(k) plan can use a non-recourse loan to buy real estate without triggering the UBTI tax. In other words, a Solo 401(k) plan real estate investor can leverage his or her assets and generate tax-deferred gains without any tax.
What are the Solo 401(k) rules?
The Solo 401(k) plan offers very flexible contribution options, including pre-tax, after-tax, and Roth. In addition, there are many important rules that dictate how one can gain access to funds from a 401k) plan through distribution and/or a tax-free loan.
What is a prohibited transaction?
The Internal Revenue Code does not describe what a Solo 401(k) plan can invest in, only what it cannot invest in. Code Sections 408 & 4975 prohibits Disqualified Persons from engaging in certain types of transactions.
What is UBTI?
Most Solo 401(k) plan investments are exempt from the Unrelated Business Taxable Income (UBTI) tax. Some examples of exempt type of income include: interest and rental income. However, there are types of income that could subject a Solo 401(k) to the UBTI tax.
