Elements of a True Solo 401(k) Plan

IRA Financial offers a true Solo 401(k) retirement plan to our clients. Our plan includes the Solo 401(k) loan feature, a Roth sub-account for after-tax contributions and the ability to establish checkbook control to make all IRS approved investments without custodian consent.

The Solo 401(k)

The IRS approved Solo 401(k) Plan has been used by hundreds of thousands of small businesses for over 30 years. However, the scope of options available to Solo 401(k) Plan participants is determined based on the plan documents. To this end, most financial institutions that offer Solo 401(k) restrict the Plan participant to invest plan assets solely in their financial products and do not permit plan loans. Even though the IRS allows for 401(k) plans to invest in nontraditional investments, such as real estate, and allows for Plan loans (IRC 72(p)), those options are typically not offered by financial institutions because it would cut into the commissions, they can earn from your plan investments. For example, if you use your 401(k) plan assets to purchase real estate or do a loan, you will have less money to buy their financial products.

The True Solo 401(k) Plan offered by the IRA Financial Group offers the self-employed business owner the ability to use his or her retirement funds to make almost any type of investment, including real estate, tax liens, private businesses, precious metals, and foreign currency on their own without requiring custodian consent tax-free! In addition, a Solo 401(k) Plan will allow you to make high contribution limits (up to $67,500) as well as borrow up to $50,000 for any purpose. Also, you will be able to open up the Solo 401(k) Qualified Plan Trust account at any local bank or credit union.

Related: Solo 401k Investment Options

The True Solo 401(k) plan advantages

The IRA Financial Group’s True Solo 401(k) plan is unique and so popular because it is designed explicitly for small, owner only business. There are many features of our True Solo 401(k) plan that make it so appealing and popular among self-employed business owners.

High Contribution Limits

Under the 2022 Solo 401k contribution rules, a plan participant under the age of 50 can make a maximum employee deferral contribution in the amount of $20,500. That amount can be made in pretax or after-tax (Roth). On the profit-sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) contribution up to a combined maximum, including the employee deferral, of $61,000.

For plan participants age 50 and older, an individual can make a maximum employee deferral contribution in the amount of $27,000. That amount can be made in pretax or after-tax (Roth). On the profit-sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) contribution up to a combined maximum, including the employee deferral, of $67,500.

Loan Feature

With the True Solo 401(k) Plan, a plan participant is eligible to borrow up to $50,000 or 50% of their account value (whichever is less) for any purpose, including paying credit card bills, mortgage payments, personal or business investments, a car, vacation, or anything else. The loan has to be paid back over a five-year period at least quarterly at a minimum prime interest rate (you have the option of selecting a higher interest rate)

“Checkbook Control”

The most noteworthy benefit of the True Solo 401(k) is that it does not require the participant to hire a bank or trust company to serve as trustee. This flexibility allows the plan participant (you) to serve in the trustee role. This means that all assets of the 401(k) trust are under the sole authority of the Solo 401(k) participant. A True Solo 401(k) plan allows you to eliminate the expense and delays associated with an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself. Making a Solo 401(k) Plan investment is as simple as writing a check.

Related: Investing in Real Estate with a Solo 401(k)

Flexible Contribution Options

With the True Solo 401(k) Plan, contributions are completely discretionary. You always have the option to try to contribute as much as legally possible, but you always have the option of reducing or even suspending plan contributions if necessary.

Roth Type Contributions

The Solo 401(k) plan contains a built in Roth sub-account which can be contributed to without any income restrictions.

Offset the Cost of Your Plan with a Tax Deduction

By paying for your Solo 401(k) with business funds, you would be eligible to claim a deduction for the cost of the plan, including annual maintenance fees. The deduction for the cost associated with the Solo 401(k) Plan and ongoing maintenance will help reduce your business’s income tax liability, which will in-turn offset the cost of adopting a self-directed Solo 401(k) Plan. The retirement tax professionals at the IRA Financial Group will help you take advantage of the available business tax deduction for adopting a Solo 401k Plan.

Cost Effective Administration

The True Solo 401(k) Plan is easy to operate and effortless to administer. There is generally no annual filing requirement unless your Solo 401k exceeds $250,000 in assets, in which case you will need to file a short information return with the IRS (Form 5500-EZ).

Roth Conversion

The True Solo 401(k) Plan allows for the conversion of pretax 401(k) funds to a Roth. However, the 401(k) Plan participant must pay income tax on the amount converted.

Related: The Roth 401(k) Secret

For more information about our True Solo 401(k) email us at [email protected] or call 1-800-472-0646 to speak with one of our customer service representatives today!