A Self-Directed 401K
A Self-Directed 401K, also known as an Individual 401K, Solo 401K, Self-Employed 401K, or SoloK, is a retirement account designed to specifically support businesses that solely employ the owner, their spouse, and business partners.
Self-directed 401Ks are for corporations, incorporated and unincorporated businesses, partnerships, and sole proprietorships. Requirements for qualified contributions to a Solo 401K are simply that the contributor receives a salary or wage.
The business must also not have any additional staff or employees other than the spouse of the plan holder or the business’s partners.
Meeting the IRS mandated qualifications offers high 401K contribution limits along with the possibility of tax deductions.
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Benefits of a Self-Directed 401K
- The contributions made to an SD401K are tax-deferred until they are withdrawn. The investment returns and the earnings on the 401K are included in growing at a tax-deferred rate.
- For 2022, retirement savers can contribute up to $20,500, or total compensation, whichever is less. Catch-up contributions reach an extra $6,500 for savers over age 50, for a total of $27,000.
- Alternative investors have greater control over their investment options. Self-directed 401Ks allow for a broader range of assets available to purchase, providing more power to the account owner.
- Investment options include assets like real estate, private equity, tax liens, or even more traditional assets like mutual funds, ETFs, or stocks and bonds.
- By investing in alternative assets, retirement portfolios are divested from traditional assets that can perform erratically. True investment diversity includes tangible assets that a 401K allows investors to purchase.
- The sheer amount of options that a self-directed investor can choose from truly empowers investors; this helps ensure that retirement accounts are made up of quality assets.
How Solo 401K Contributions Work
When operating a Solo 401K, the contributor essentially has two job titles; the employee and the employer. Contributions can be made on behalf of both roles, so the 401K owner can contribute:
Elective Contributions: Up to 100% of compensation, up to the set limit of $20,500 for 2022, $19,500 for 2021. Catch up contributions for individuals over 50 are set at $27,000 for 2022, and $26,000 in 2021.
Employer Nonelective Contributions: Up to 25% of compensation, or the annual limit of $61,000 for 2022, $58,000 for 2021. Catch up contributions for individuals 50 or over are set at $67,500 for 2022, and $64,500 for 2021.
Contributions for Self-Employed Individuals
The IRS provides a way to calculate an individual’s own Solo 401K contribution limits. They state the following:
“When figuring the contribution, compensation is your “earned income,” which is defined as net earnings from self-employment after deducting both:
One-half of your self-employment tax, and;
Contributions for yourself.”
How Does Accuplan Improve A Self-Directed 401K?
Accuplan Benefits Services allows you to do more with a self-directed 401K. Most retirement accounts, be it a Roth, Traditional, or Solo 401k, rely on stocks and bonds as the investment option. The IRS allows many more asset types than simply stocks and bonds.
With us as your provider, you can invest in tangible assets with a self-directed 401K in real estate, gold, and other precious metals, or paper assets like private equity or loans. A self-directed retirement account allows you to take control of your retirement account and invest in what you want. With Accuplan, the possibilities are endless.
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Frequently Asked Questions
Real estate is one of the most popular assets that Accuplan’s clients invest in. We also see investments in cryptocurrency, tax liens, private equity, and so much more. The list for what is not prohibited by the IRS is much shorter and is found here.
The big-name custodians or brokerages you know usually fall under one of three reasons:
- They don’t understand alternative assets and find them bothersome.
- They don’t make money off offering these assets. They’re mainly interested in commissions to be earned off mutual funds or bonds.
- There are only a handful of actual full-service self-employed 401K providers.
Accuplan Benefits Services has streamlined our process for opening an alternative investing account. Our application takes just 5 minutes, and our knowledgeable staff processes each application, rollover, transfer, or request within minutes of receiving.
Get in contact with one of our experts here, and start investing in the alternative today.
Yes, an account holder can indeed contribute to a 401K and an IRA, but it’s important to note that the contributions made to the IRA might not be fully tax-deductible since contributions are also being made to the Solo 401K. The deciding factor will be the account holder’s AGI that determines eligibility to deduct the IRA contributions. An account holder can indeed contribute to a 401K and an IRA, but it’s important to note that the contributions made to the IRA might not be fully tax-deductible since contributions are also being made to the Solo 401K. The deciding factor will be the account holder’s AGI that determines eligibility to deduct the IRA contributions.