Dec 11

IRA Financial Group Releases Cryptocurrency E-Info Kit for Solo 401(K) Plan Investors

New Bitcoin E-Kit will help investors understand how to purchase cryptocurrencies with 401(k) funds

IRA Financial Group, the leading provider of self-directed IRA LLC and Solo 401(k) Plans, announces the launch of a new Cryptocurrency E-Info Kit. The free cryptocurrency information kit will help retirement account holders looking to purchase cryptocurrencies, such as Bitcoins, with their retirement accounts to better understand what is involved in the process. “The IRA Financial Group Crypto E-Info Kit will help guide retirement account holders looking to use a Solo 401(k) plan to buy cryptocurrencies, such as bitcoins,” stated Adam Bergman, a partner with the IRA Financial Group.

IRA Financial Group’s Crypto 401(k) platform with checkbook control will allow retirement account holders to buy, sell, or hold Bitcoins and other cryptocurrency assets and generate tax-deferred or tax-free gains, in the case of a Roth Solo 401(k). The primary advantage of using a Solo 401(k) to make Bitcoin investments is that all income and gains associated with the 401(k) investment grow tax-deferred.IRA Financial Group Releases Cryptocurrency E-Info Kit for Solo 401(K) Plan Investors

IRA Financial Group is the market’s leading provider of self-directed retirement plans. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent. The IRA Financial Trust Company, a self-directed IRA custodian, was founded by Adam Bergman, a partner with the IRA Financial Group.

IRA Financial Group is the market’s leading provider of self-directed retirement plans. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent.

Adam Bergman, IRA Financial Group partner, has written six books the topic of self-directed retirement plans, including, “The Checkbook IRA”, “Going Solo,” Turning Retirement Funds into Start-Up Dreams, Solo 401(k) Plan in a Nutshell, Self-Directed IRA in a Nutshell, and in God We Trust in Roth We Prosper.

To learn more about the IRA Financial Group please visit our website at http://www.irafinancialgroup.com or call 800-472-0646.

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Dec 04

2017 Solo 401(k) Contribution Deadline

The deadline for making Solo 401K Plan contributions is typically dependent on the type of entity that has adopted the Solo 401K Plan as well as the type of contribution – employee deferral vs. profit sharing contribution.

Sole Proprietorship

2017 Solo 401(k) Contribution DeadlineEmployee Deferral

In the case of a sole proprietorship, a business owner under the age of 50 may make employee deferral contributions up to $18,000 for 2017 (an employee over the age of 50 may make a $6,000 annual catch-up contribution for an annual deferral contribution imitation of $24,000). An Employee must elect to make the employee deferral contribution by December 31 of the year. However, the employer deferral contribution can be made up until the tax-filing deadline.

The employee deferral contribution can be made using pre-tax and/or after-tax (Roth) funds.

Profit Sharing Contribution

The sole proprietorship business may make annual profit sharing contributions for the business owner and spouse annually. Internal Revenue Code Section 401(a)(3) states that the amount of employer contributions is limited to 25 percent of the entity’s income subject to self-employment tax. Schedule C sole-proprietors must do an added calculation starting with earned income to determine their maximum contribution, which, in effect, brings the maximum 25% of compensation limit down to 20% of earned income. A step-by-step worksheet for this calculation can be found in IRS Publication 560. In general, compensation is your net earnings from self-employment. This definition takes into account both of the following items: (i) the deduction for one-half of your self-employment tax, and (ii) the deduction for contributions on your behalf to the plan.

The profit sharing contribution must be made by the business’s tax-filing deadline.

Single Member LLC

Employee Deferral

In the case of a single member LLC, the single member LLC owner under the age of age 50 may make employee deferral contributions up to $18,000 for 2017 (an employee over the age of 50 may make a $6,000 annual catch-up contribution for an annual deferral contribution limitation of $24,000). The single member LLC owner must elect to make the employee deferral contribution by December 31 of the year. However, the employer deferral contribution can be made up until the tax-filing deadline.

The employee deferral contribution can be made using pre-tax and/or after-tax (Roth) funds.

Profit Sharing Contribution

The single Member LLC business may make annual profit sharing contributions for the business owner and spouse annually. Internal Revenue Code Section 401(a)(3) states that the amount of employer contributions is limited to 25 percent of the entity’s income subject to self- employment tax. Schedule C single member LLC owners must do an added calculation starting with earned income to determine their maximum contribution, which, in effect, brings the maximum 25% of compensation limit down to 20% of earned income. A step-by-step worksheet for this calculation can be found in IRS Publication 560. In general, compensation is your net earnings from self-employment. This definition takes into account both of the following items: (i) the deduction for one-half of your self-employment tax, and (ii) the deduction for contributions on your behalf to the plan.

Profit-sharing contributions must be funded by the business’s tax-filing deadline.

Multiple-Member LLC

Employee Deferral

In the case of a multiple member LLC, the multiple-member LLC owners under the age of age 50 may make employee deferral contributions up to $18,000 for 2017 (an employee over the age of 50 may make a $6,000 annual catch-up contribution for an annual deferral contribution limitation of $24,000). The multiple-member LLC owners must elect to make the employee deferral contribution by December 31 of the year. However, the employee deferral contribution can be made up until the tax-filing deadline.

The employee deferral contribution can be made using pre-tax and/or after-tax (Roth) funds.

Profit Sharing Contribution

The multiple-member LLC business may make annual profit sharing contributions for the business owners annually. Internal Revenue Code Section 401(a)(3) states that the amount of employer profit sharing contributions is limited to 25 percent of the entity’s income subject to self-employment tax. Profit-sharing contributions must be funded by the business’s tax-filing deadline.

C Corporation & S Corporation

Employee Deferral

An employee of a corporation will receive a W-2. When it comes to making employee deferral contributions, the employee must make the deferral contribution during the year. The timing of the deferral contribution will typically depend on the business. In the case of a corporation that uses a payroll company, the employee deferral will typically be deducted from the employee’s paycheck. If the company does not use a payroll system, the employee can elect to make deferral contributions at anytime during the year. Once the election is made the Department of Labor safe harbor is that the funds are deposited into the Solo 401(k) Plan account within 7 days. The employee making the employee contribution should make sure that he or she has earned enough compensation during the pay period to cover the employee contribution. For example, if the employee wishes to make a employee deferral contribution of $18,000 on December 30th, the employee will need to be sure that he or she has earned sufficient compensation during the pay period to cover the deferral contribution.

The employee deferral contribution can be made using pre-tax and/or after-tax (Roth) funds.

Profit Sharing Contributions

The corporation may make profit sharing contributions for corporation’s owner(s)/employee(s) annually. Internal Revenue Code Section 401(a)(3) states that the amount of employer profit sharing contributions is limited to 25 percent of the entity’s income subject to self-employment tax.

Profit-sharing contributions must be funded by the business’s tax-filing deadline.

Please contact one of our Solo 401k Experts at 800-472-0646 for more information.

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Nov 17

When Are Roth Solo 401(k) Distributions Taxed?

When Are Roth Solo 401(k) Distributions Taxed?Generally, distributions from a designated Roth Solo 401(k) account are excluded from gross income if they are (1) made after the employee attains age 59 1/2 , (2) “attributable to” the employee being “disabled,” or (3) made to the employee’s beneficiary or estate after the employee’s death. However, the exclusion is denied if the distribution occurs within five years after the employee’s first designated Roth contribution to the account from which the distribution is received or, if the account contains a rollover from another designated Roth account, to the other account. Other distributions from a designated Roth account are excluded from gross income under Internal Revenue Code 72 only to the extent they consist of designated Roth contributions and are taxable to the extent they consist of trust earnings credited to the account.

Please contact one of our 401(k) Experts at 800-472-0646 for more information.

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Oct 23

IRS Announces 2018 Solo 401(k) Contribution Limits

Under the 2018 Solo 401(k) contribution rules, a plan participant under the age of 50 can make a maximum annual employee deferral contribution in the amount of $18,500. That amount can be made in pre-tax, after-tax or Roth. On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) annual profit sharing contribution up to a combined maximum, including the employee deferral, of $55,000, an increase of $1,000 from 2017.

IRS Announces 2018 Solo 401(k) Contribution LimitsFor plan participants over the age of 50, an individual can make a maximum annual employee deferral contribution in the amount of $24,500. That amount can be made in pre-tax, after tax, or Roth. On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) annual profit sharing contribution up to a combined maximum, including the employee deferral, of $61,000, an increase of $1,000 from 2017.

One of the main benefits of a Solo 401(k) Plan is the opportunity to make higher annual contributions in pre-tax, after-tax or Roth.

IRA Financial Group’s Solo 401(k) plan is unique and so popular because it is designed explicitly for small, owner-only business. In addition, to the high annual contribution limitations. There are many features of the IRA Financial Group’s Solo 401(k) plan that make it so appealing for small business owners.

Tax and Penalty Free Loan

Unlike most Solo 401(k) Plans offered by the traditional financial institutions such as Fidelity, IRA Financial Group’s Solo 401(k) Plan allows plan participants 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, 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 & No Transaction Fees

The most attractive feature of the IRA Financial Group Solo 401(k) Plan is that it offers the plan participant checkbook control over his or her retirement funds. In the case of a conventional Solo 401(k) Plan offered by most financial institutions, the plan participant is relegated to making traditional investments, such as stocks and or mutual funds. In addition, the Solo 401(k) Plan account is required to be opened at the financial institution. With IRA Financial Group’s Solo 401(k) Plan, the plan account can be opened at any local bank, including Chase, Wells Fargo, and even Fidelity. In addition, with IRA Financial Group’s Solo 401(k) Plan, the plan participant can make almost any traditional as well as non-traditional investments, such as real estate, precious metals, tax liens, and much more. With IRA Financial Group’s Solo 401(k) Plan, the Plan participant has the freedom to make the investments he or she wants while at the same time opening the 401(k) account at any local bank. As trustee of the Solo 401(k) Plan, the Plan Participant (you) can serve as the trustee providing you checkbook control over your retirement funds. With IRA Financial Group’s Solo 401(k) Plan, making a Solo 401(k) Plan investment is as simple as writing a check.

Invest in Real Estate & Much More Tax-Free

With IRA Financial Group’s Self-Directed Solo 401(k) plan, you will be able to invest in almost any type of investment opportunity that you discover, including: real estate, tax liens, precious metals, private notes, hard money loans, private business, etc.; your only limit is your imagination. The income and gains from these investments will flow back into your Solo 401(k) tax-free.

Roth Contributions & Conversion

Unlike a conventional Solo 401(k) Plan offered by most financial institutions, IRA Financial Group’s Solo 401(k) Plan contains a built in Roth sub-account which can be contributed to without any income restrictions. In addition, the IRA Financial Group’s Solo 401(k) Plan allows for the conversion of a traditional 401(k) or 403(b) account to a Roth subaccount. However, the Solo 401(k) Plan participant must pay income tax on the amount converted.

Easy Administration

IRA Financial Group’s Solo 401(k) Plan is easy to operate. There is generally no annual filing requirement unless your solo 401(k) Plan exceeds $250,000 in assets, in which case you will need to file a short information return with the IRS (Form 5500-EZ). However, unlike a financial institution, the tax professionals at the IRA Financial Group will assist you in completing this form, if it is required.

To learn more about the advantages of the Solo 401K Plan with Checkbook Control please contact a 401(k) Expert at 800-472-0646.

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Aug 17

Tips and Tricks for Solo 401(k) Alternate Investments

A Solo 401(k) Plan offers one the ability to use his or her retirement funds to make almost any type of investment on their own without requiring the consent of any custodian or person. The IRS and Department of Labor only describe the types of investments that are prohibited, which are very few.

The foundation of the prohibited transaction rules are based on the premise that investments involving a Solo 401(k) Plan and related parties are handled in a way that benefits the retirement account and not the plan participant. The rules prohibit transactions between the plan participant and certain individuals known as “disqualified persons”. The outline for these rules can be found in Internal Revenue Code Section 4975. In general, the definition of a “disqualified person” (Internal Revenue Code Section 4975(e)(2)) extends into a variety of related party scenarios, but generally includes the Solo 401(k) Plan participant, any ancestors or lineal descendants of the plan participant, and entities in which the plan participant holds a controlling equity or management interest.

Types of Solo 401(k) Alternate Investments:

  • Residential or commercial real estate
  • Domestic of foreign real estate
  • Raw land
  • Foreclosure property
  • Mortgages
  • Mortgage pools
  • Deeds
  • Private loans
  • Tax liens
  • Private businesses
  • Limited Liability Companies
  • Limited Liability Partnerships
  • Private placements
  • Precious metals and certain coins
  • Stocks, bonds, mutual funds
  • Foreign currencies

Real Estate

The IRS permits using a Solo 401(k) to purchase real estate or raw land. Since you are the trustee of the 401(k) Plan, making a real estate investment is as simple as writing a check from your 401(k) Plan bank account. The advantage of purchasing real estate with your Solo 401(k) Plan is that all gains are tax-deferred until a distribution is taken (pre-tax 401(k) distributions are not required until the plan participant turns 70 1/2). In the case of a Roth Solo 401(k) Plan, all gains are tax-free.

Solo 401(k) Alternate Investments For example, if you purchased a piece of property with your Solo 401(k) Plan for $100,000 and you later sold the property for $300,000, the $200,000 of gain appreciation would generally be tax-deferred. Whereas, if you purchased the property using personal funds (non-retirement funds), the gain would be subject to federal income tax and in most cases state income tax.

Helpful Tips :

  • The deposit and purchase price for the real estate property should be paid using Solo 401(k) Plan funds or funds from a non-disqualified third-party
  • No personal funds or funds from a “disqualified person” should be used
  • All expenses, repairs, taxes incurred in connection with the Solo 401(k) Plan real estate investment should be paid using retirement funds – no personal funds should be used
  • If additional funds are required for improvements or other matters involving the real estate investments, all funds should come from the Solo 401(k) Plan or from a non “disqualified person”
  • If financing is needed for a real estate transaction, only nonrecourse financing should be used. A nonrecourse loan is a loan that is not personally guaranteed and whereby the lender’s only recourse is against the property and not against the borrower.
  • With a Solo 401(k) Plan the use of a nonrecourse loan would not be subject to any tax pursuant to Internal Revenue Code Section 514, which is not the case with an IRA. This provides a very exciting investment opportunity.
  • No services should be performed by the Solo 401(k) Plan participant or “disqualified person” in connection with the real estate investment. In general, other then typical trustee type of services (necessary and required tasks in connection with the maintenance of the plan), no active services should be performed by the plan participant or a “disqualified person” with respect to the real estate transaction.
  • Title of the real estate purchased should be in the name of the trustee for the benefit of the plan. For example, if Joe Smith is the trustee of ABC 401K Trust, title to real estate purchased by Joe’s plan would be as follows: Joe Smith as Trustee of the ABC 401K Trust
  • Keep good records of income and expenses generated by the real estate investment
  • All income, gains or losses from a Solo 401(k) Plan real estate investment should be allocated to the Solo 401(K) Plan
  • Make sure you perform adequate diligence on the property you will be purchasing especially if it is in a state you do not live in
  • Make sure you will not be engaging in any self-dealing real estate transaction which would involve buying or selling real estate that will personally benefit you or a “disqualified person”

Tax Liens

The IRS permits the purchase of tax liens and tax deeds with a Solo 401(k) Plan. By using a Solo 401(k) Plan to purchase tax-liens or tax deeds, your profits are tax-deferred back into your retirement account until a distribution is taken (pre-tax 401(k) distributions are not required until the Plan Participant turns 70 1/2). In the case of a Roth Solo 401(k) Plan, all gains are tax-free.

More importantly, with a Solo 401(k) Plan, you, as trustee of the 401(k) Plan, will have “checkbook control” over your retirement funds allowing you to make purchases on the spot without custodian consent. In other words, purchasing a tax-lien or tax deed is as easy as writing a check!

Helpful Tips :

  • The deposit and purchase price for the tax lien should be paid using Solo 401(k) Plan funds or funds from a non-disqualified third-party
  • No personal funds or funds from a “disqualified person” should be used
  • A check from the Solo 401(k) Plan account should be taking to auction or used for the tax lien purchase – no personal check or cash should be used
  • No credit card should be applied for in the name of the Solo 401(k) Plan as that would violate the IRS prohibited transaction rules. A pure debit card is allowable
  • All income, gains or losses from tax lien investments should be allocated to the Solo 401(K) Plan

Loans & Notes

The IRS permits using 401(k) funds to make loans or purchase notes from third parties. By using a Solo 401(k) Plan to make loans or purchase notes from third-parties, all interest payments received would be tax-deferred until a distribution is taken (pre-tax 401(k) distributions are not required until the Plan Participant turns 70 1/2). In the case of a Roth Solo 401(k) Plan, all gains are tax-free.

For example, if you used a Solo 401(k) to loan money to a friend, all interest received would flow back into your 401(k) Plan tax-free. Whereas, if you lent your friend money from personal funds (non-retirement funds), the interest received would be subject to federal and in most cases state income tax.

Helpful Tips :

  • The loan or note amount should be paid using Solo 401(k) Plan funds or funds from a non-disqualified third-party
  • No personal funds or funds from a “disqualified person” should be used in the loan transaction
  • The loan or note should not involve a “disqualified person” directly or indirectly
  • The loan or note should have a stated interest rate of at least Prime as per the Wall Street Journal (4.25% as of 6/23/17)
  • All interest and principal associated with the loan or note should be allocated to the Solo 401(K) Plan
  • It is good practice to have the loan terms documented in a promissory note or loan agreement
  • If you will be acting as the lender, consider securing the loan with an interest or lien in an asset owned by the borrower
  • Make sure you will not be engaging in any self-dealing loan transaction which would involve a loan or note that will personally benefit you or a “disqualified person”

Private Businesses

With a Solo 401(k) you are permitted to purchase an interest in a privately held business. The business to be purchased can be any entity other than an S Corporation (i.e. limited liability company, C Corporation, partnership, etc.). When investing in a private business using 401(k) funds, it is important to keep in mind the “Disqualified Person” and “Prohibited Transaction” rules under IRC 4975 and the Unrelated Business Taxable Income rules under IRC 512.

Helpful Tips :

  • The deposit and purchase price for the business should be paid using Solo 401(k) Plan funds or funds from a non-disqualified third-party
  • No personal funds or funds from a “disqualified person” should be used to purchase the business
  • The purchase of the stock or assets of the business should not directly or indirectly benefit the plan participant personally or any “disqualified person”
  • The purchase of a business operated via an LLC or partnership will potentially trigger the Unrelated Business Taxable Income rules under IRC 512 and a corresponding tax of approximately 40% for 2017 would be applied
  • Stock of an S Corporation should not be purchased with retirement funds as the S corporation rules only allow individuals to be S Corporation shareholders
  • The purchase of stock of a C Corporation would not trigger the application of the Unrelated Business Taxable Income rules under IRC 512
  • All income, gains or losses from the purchased business should be allocated to the Solo 401(K) Plan
  • The plan participant or any “disqualified person” should not have any ownership in the business being purchased and should not directly or indirectly personally benefit from the acquisition
  • Make sure to perform adequate diligence on the business you will be purchasing or investing in especially if you will be buying the stock/interests and not the assets
  • Make sure you will not be engaging in any business acquisition transaction which would involve buying or selling a business that will personally benefit you or a “disqualified person”

Precious Metals & Coins

Our Solo 401(k) Plan documents allow for investments into precious metals and certain coins. The advantage of using a Solo 401(k) Plan to purchase precious metals and/or coins is that their values generally keep up with, or exceed, inflation rates better than other investments. In addition, IRS approved metals or coins, as defined under Internal Revenue Code Section 408(m) should be held an an approved depository or U.S. Bank.

Helpful Tips:

  • Only IRS approved metals or coins (bullion) may be purchases as per Internal Revenue Code Section 408(m)
  • The IRS approved precious metals or coins being purchased by the plan should be paid using Solo 401(k) plan funds or funds from a non-disqualified third-party
  • With respect to IRS approved precious metals or coins (bullion), the metals or coins should not be held in the personal possession of any individual
  • With respect to the IRS approved precious metals or coins outlined in Internal Revenue Code Section 408(m), the bullion must be held in the “physical possession” of a U.S. depository or at a U.S. bank
  • An affidavit signed by the trustee of the plan confirming that the IRS approved precious metals or coins are being purchased and being held in the sole interest of the retirement account is good practice
  • All income, gains or losses from the purchased precious metals or coins should be allocated to the Solo 401(k) Plan
  • IRS approved precious metals or coins should not be held at a bank outside the United States
  • Perform adequate diligence on the dealer with which you will be transacting with for the purchase of IRS approved metals or coins

Foreign Currencies

The IRS does not prevent the use of 401(k) funds to purchase foreign currencies, including Iraqi Dinars. In fact, our Solo 401(k) Plan documents permit the purchase of foreign currencies. Many believe that foreign currency investments offer liquidity advantages to the stock market as well as significant investment opportunities.

By using a Solo 401(k) to purchase foreign currencies, such as the Iraqi Dinar, all foreign currency gains generated would be tax-deferred until a distribution is taken (pre-tax 401(k) distributions are not required until the Plan Participant turns 70 1/2). In the case of a Roth Solo 401(k) Plan, all gains are tax-free.

Helpful Tips :

  • Make sure you have a solid background in trading currencies – high volatile and significant risk
  • If you will be investing with a third-party, perform adequate diligence on the individual and make sure the individual has the knowledge to trade foreign currencies and all his/her securities licenses are in good standing.
  • Beware of leverage – it is allowable but it would trigger the application of the Unrelated Business Taxable Income rules under IRC 512 and thereby a corresponding tax
  • No personal guarantee of any leverage or loan obligation is permitted
  • All income, gains or losses from the foreign currency transactions should be allocated to the Solo 401(K) Plan

Stocks, Bonds, Mutual Funds, CDs

In addition to non-traditional investments such as real estate, a Solo 401(k) may purchase stock, bonds, mutual funds, and CDs. The advantage of using a self-directed Solo 401(k) Plan is that you are not limited to just making these types of investments. With a Solo 401(k) Plan with “checkbook control” you can open a stock trading account with any financial institution as well as purchase real estate, buy tax liens, or lend money to a third-party. Your investment opportunities are endless! When purchasing stocks or securities with a Solo 401(k) Plan, all income and gains, including dividends, would flow back to the plan without tax. With a Roth Solo 401(k) Plan, all gains are tax-free. Whereas, if you purchased stocks with personal funds, all income and gains would be subject to federal and in most cases state income tax.

Helpful Tips :

  • If you will be investing with a third-party, perform adequate diligence on the individual and make sure the individual has the knowledge to trade stocks or securities and all his/her securities licenses are in good standing.
  • Beware of promoters who are promising high returns and that do not work at reputable financial institutions – high likelihood of fraud
  • Beware of leverage – it is allowable but it would trigger the application of the Unrelated Business Taxable Income rules under IRC 512 and thereby a corresponding tax
  • No personal guarantee of any leverage or loan obligation is permitted
  • Open up a brokerage account in the name of the Solo 401(k) Plan – not a personal account
  • All income, gains or losses from the stock investments should be allocated to the Solo 401(K) Plan

If you have any questions about whether your specific Solo 401(k) Plan transaction would potentially be in violation of IRS rules, please contact a tax professional at the IRA Financial Group at 800-472-0646.

Aug 04

The Advantages of the Roth Solo 401(k) Plan

The Roth Solo 401(k) Plan is the ultimate tax-free retirement solution for the self-employed. With federal and state income tax rates expected to increase in the future, gaining the ability to generate tax-free returns from your retirement investments when you retire is the last surviving legal tax shelter. With a Roth Solo 401K you can make almost any investment tax-free, including real estate, tax liens, precious metals, currencies, options, and private business investments.  Once you hit the age of 59 1/2 you will be able to live off your Roth 401K assets without ever paying tax. Imagine if someone told you that if you started making Roth 401K contributions in your forties and by just generating a modest rate of return, you could have over a million dollars tax-free when you retire. With a Roth 401K, live off the Roth 401K investment income tax-free or take a portion of your Roth 401K funds and use it for any purpose without ever paying tax.

The Roth Solo 401(k) Plan Advantages

Power of Tax-Free Investing: One of the main attractions to the self-directed Roth Solo 401(k) plan is based on the fact that qualified distributions of Roth earnings are tax-free. As long as certain conditions are met and the distribution is a qualified distribution, the Roth solo 401(k) plan participant will never pay tax on any Roth distributions received. The advantage of contributing to a Roth solo 401(k) plan is that income and gains generated by the Roth 401(k) investment can be tax-free and penalty-free so long as certain requirements are satisfied. Unlike with a pre-tax solo 401(k) plan contributions, contributions to a Roth solo 401(k) are not tax deductible.

 

The power of tax-free investing can be best illustrated by way of the following examples:

Example 1: Joe, a self-employThe Roth Solo 401(k) Plan is the ultimate tax-free retirement solution for the self-employed.ed consultant began funding a Roth solo 401(k) plan with $3,000 per year at age 20 and would continue on through age 65. At age 65 Joe would wind up with $2.5 million at retirement (assuming they earn the long-run annual compound growth rate in stocks, which was 9.88 percent from 1926 to 2011). Not a bad result for investing only $3,000 a year.

Example 2: Ben, a self-employed real estate agent, who is 30 years began funding a Roth solo 401(k) plan with $8000 and wanted to know how much he would have at age 70 if he continued to make $8000 annual contributions and was able to earn at an 8% rate of return. Ben did some research and was astonished that at age 70 he would have a whopping $ 2,238,248 tax-free which he can then live off or pass to his wife or children tax-free.

Example 3: Mary, a self-employed real estate investor, who is 35 years began funding a Roth solo 401(k) plan with $13000 and wanted to know how much she would have at age 70 if she continued to make $13000 annual contributions and was able to earn at a 10% rate of return, which she felt was possible based off her past real estate investment returns. Mary did some research and was astonished that at age 70 she would have a whopping $ 3,875,649 tax-free which she could then live off or pass to her husband and children tax-free.

I am sure it may be hard for some of you to comprehend that putting away just a few thousand dollars a year in a Roth Solo 401(k) plan can leave you with millions of dollars tax-free. It’s as simple as making annual contributions to your Roth Solo 401(k) Plan and then generating tax-free returns from making real estate or other investments with your solo 401(k) plan.

High Contributions: A Roth Solo 401(k) combines features of the traditional 401(k) with those of the Roth IRA. Like a Solo 401K Plan, the Roth Solo 401K Plan is perfect for any self-employed individual or small business owner with no employees. The Roth Solo 401K Plan contains the same advantages of a Solo 401(k) Plan, but as with a Roth IRA, contributions are made with after-tax dollars. While you don’t get an upfront tax-deduction, the Roth 401K account grows tax-free, and withdrawals taken during retirement aren’t subject to income tax, provided you’re at least 59 1/2 and you’ve held the account for five years or more.

The Roth Solo 401(k) can offer advantages to self-employed individuals who wish to maximize their ability to generate tax-free retirement savings while receiving the ability to invest in real estate, precious metals, private businesses or funds tax-free and without custodian consent.

Unlike a Roth IRA, which limits individual Roth IRA contributions to $5,500 annually ($6,500 if the individual is 50 years or older), in 2017, with a Roth Solo 401(k) account, an individual can make Roth (after-tax) contributions of up to $18,000, or $24,000 for those 50 or older by the end of the year — allowing individuals to stock away thousands of dollars more in tax-free retirement income than they would through a Roth IRA.

A Roth Solo 401(k) is perfect for sole proprietors, small businesses and independent contractors such as consultants. The Roth Solo 401(k) plan is unique and so popular because it is considered the last remaining legal tax shelter available. There are so many features of the Roth Solo 401(k) plan that make it so appealing and popular among self-employed business owners.

Unlimited Investment Opportunities: With a Roth 401(k) Plan or Roth 401(k) plan sub-account, you can invest your after-tax Roth 401(k) Plan funds in real estate, precious metals, tax liens, private business investments, and much more tax-free! Unlike with a pre-tax 401(k) Plan, with a Roth 401(k) account, all income and gains would flow back tax-free to your account. As long as you have reached the age of 59 1/2 and have had the Roth 401(k) account opened at least five years, you can take Roth 401(k) Plan distributions tax-free. In other words, you can live off your Roth 401(k) Plan assets or income tax-free. With federal income tax rates expected increase, the ability to have a tax-free source of income upon retirement may be the difference between retiring early or not.

Loan Feature: While an IRA offers no participant loan feature, the Roth Solo 401k allows participants to borrow up to $50,000 or 50% of their account value (whichever is less) for any purpose at a low interest rate (the lowest interest rate is Prime which is 4.25% as of 6/23/17). This offers a Roth Solo 401(k) Plan participant the ability to access up to $50,000 to use for any purpose, including paying personal debt or funding a business.

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 401(k) Plan.

Cost Effective Administration: In general, the Roth solo 401(k) plan is easy to operate. There is generally no annual filing requirement unless your solo 401(k) plan exceeds $250,000 in assets, in which case you will need to file a short information return with the IRS (Form 5500-EZ).

Exemption from UDFI: When an IRA buys real estate that is leveraged with mortgage financing, it creates Unrelated Debt Financed Income (“UDFI”) – a type of Unrelated Business Taxable Income (also known as “UBTI” or “UBIT”) on which taxes must be paid. The UBTI tax is approximately 40% for 2017. Whereas, with a Roth Solo 401(k) plan, you can use leverage without being subject to the UDFI rules and UBTI tax. This exemption provides significant tax advantages for using a Roth Solo 401(k) Plan versus an IRA to purchase real estate.

To learn more about the Roth Solo 401(k) Plan, please contact a 401(k) expert at 800-472-0646.

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Jul 14

Contribution Limits for the Solo 401k Make it the Retirement Choice for the Self-Employed

Under the 2017 Solo 401(k) contribution rules, a plan participant under the age of 50 can make a maximum annual employee deferral contribution in the amount of $18,000. That amount can be made in pre-tax, after-tax or Roth. On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) annual profit sharing contribution up to a combined maximum, including the employee deferral, of $54,000, an increase of $1,000 from 2016.

For plan participants over the age of 50, an individual can make a maximum annual employee deferral contribution in the amount of $24,000. That amount can be made in pre-tax, after tax, or Roth. On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) annual profit sharing contribution up to a combined maximum, including the employee deferral, of $60,000, an increase of $1,000 from 2016.

One of the main benefits of a Solo 401(k) Plan is the opportunity to make higher annual contributions in pre-tax, after-tax or Roth.

IRA Financial Group’s Solo 401(k) plan is unique and so popular because it is designed explicitly for small, owner-only business. In addition, to the high annual contribution limitations. There are many features of the IRA Financial Group’s Solo 401(k) plan that make it so appealing for small business owners.

Tax and Penalty Free Loan

Unlike most Solo 401(k) Plans offered by the traditional financial institutions such as Fidelity, IRA Financial Group’s Solo 401(k) Plan allows plan participants 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, 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 & No Transaction Fees

The most attractive feature of the IRA Financial Group Solo 401(k) Plan is that it offers the plan participant checkbook control over his or her retirement funds. In the case of a conventional Solo 401(k) Plan offered by most financial institutions, the plan participant is relegated to making traditional investments, such as stocks and or mutual funds. In addition, the Solo 401(k) Plan account is required to be opened at the financial institution. With IRA Financial Group’s Solo 401(k) Plan, the plan account can be opened at any local bank, including Chase, Wells Fargo, and even Fidelity. In addition, with IRA Financial Group’s Solo 401(k) Plan, the plan participant can make almost any traditional as well as non-traditional investments, such as real estate, precious metals, tax liens, and much more. With IRA Financial Group’s Solo 401(k) Plan, the Plan participant has the freedom to make the investments he or she wants while at the same time opening the 401(k) account at any local bank. As trustee of the Solo 401(k) Plan, the Plan Participant (you) can serve as the trustee providing you checkbook control over your retirement funds. With IRA Financial Group’s Solo 401(k) Plan, making a Solo 401(k) Plan investment is as simple as writing a check.

Invest in Real Estate & Much More Tax-Free

With IRA Financial Group’s Self-Directed Solo 401(k) plan, you will be able to invest in almost any type of investment opportunity that you discover, including: real estate, tax liens, precious metals, private notes, hard money loans, private business, etc.; your only limit is your imagination. The income and gains from these investments will flow back into your Solo 401(k) tax-free.

Roth Contributions & Conversion

Unlike a conventional Solo 401(k) Plan offered by most financial institutions, IRA Financial Group’s Solo 401(k) Plan contains a built in Roth sub-account which can be contributed to without any income restrictions. In addition, the IRA Financial Group’s Solo 401(k) Plan allows for the conversion of a traditional 401(k) or 403(b) account to a Roth subaccount. However, the Solo 401(k) Plan participant must pay income tax on the amount converted.

Easy Administration

IRA Financial Group’s Solo 401(k) Plan is easy to operate. There is generally no annual filing requirement unless your solo 401(k) Plan exceeds $250,000 in assets, in which case you will need to file a short information return with the IRS (Form 5500-EZ). However, unlike a financial institution, the tax professionals at the IRA Financial Group will assist you in completing this form is require.

To learn more about the advantages of the Solo 401K Plan with Checkbook Control please contact a 401(k) Expert at 800-472-0646.

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Jun 17

What Are the Advantages of a Solo 401k Plan vs a Self-Directed IRA?

A Solo 401(k) Plan is an IRS approved retirement plan, which is suited for business owners who do not have any employees other than themselves and perhaps their spouse. The “one-participant 401(k) Plan” or individual 401(k) Plan is not a new type of plan. It is a traditional 401k Plan covering only one employee.  Unlike a Traditional IRA, which only allows an individual to contribute $5500 annually or $6500 if the individual is over the age of 50, a Solo 401k Plan offers the Plan participant the ability to contribute up to $60,000 each year.  Before the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) became effective in 2002, there was no compelling reason for an owner-only business to establish a Solo 401(k) Plan because the business owner could generally receive the same benefits by adopting a profit sharing plan or a SEP IRA.  After 2002, EGTRRA paved the way for an owner-only business to put more money aside for retirement and to operate a more cost-effective retirement plan than a Traditional IRA or 401(k) Plan.

There are a number of options that are specific to Solo 401k Plans that make the Solo 401k Plan a far more attractive retirement option for a self-employed individual than a Traditional IRA for a self-employed individual.

1. Reach your Maximum Contribution Amount Quicker: A Solo 401(k) Plan includes both an employee and profit sharing contribution option, whereas, a Traditional IRA has a very low annual contribution limit.

Under the 2017 Solo 401(k) contribution rules, a plan participant under the age of 50 can make a maximum employee deferral contribution in the amount of $18,000. That amount can be made in pre-tax 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) profit sharing contribution up to a combined maximum, including the employee deferral, of $54,000.

What Are the Advantages of a Solo 401k Plan vs a Self-Directed IRA?For plan participants over the age of 50, an individual can make a maximum employee deferral contribution in the amount of $24,000. That amount can be made in pre-tax 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) profit sharing contribution up to a combined maximum, including the employee deferral, of $60,000.

Whereas, a Traditional Self-Directed IRA would only allow an individual with earned income during the year to contribute up to $5500, $6500 if the individual is over the age of 50.

For example, Joe, who is 60 years old, owns 100% of an S Corporation with no full time employees.  Joe earned $100,000 in self-employment W-2 wages for 2017.  If Joe had a Solo 401(k) Plan established for 2017, Joe would be able to defer approximately $49,000 for 2017 (a $24,000 employee deferral, which could be pre-tax or Roth, and 25% of his compensation giving him $49,000 for the year).   Whereas, if Joe established a Traditional Self-Directed IRA, Joe would only be able to defer approximately $6,500 for 2017.

2. No Roth Feature: A Solo 401k Plan can be made in pre-tax or Roth (after-tax) format.  Whereas, in the case of a Traditional Self-Directed IRA, contributions can only be made in pre-tax format.  In addition, a contribution of $18,000 ($24,00, if the plan participant is over the age of 50) can be made to a Solo 401(k) Roth account.

3. Tax-Free Loan Option: With a Solo 401K Plan, you can borrow up to $50,000 or 50% of your account value, what ever is less.  The loan can be used for any purpose.  With a Traditional Self-Directed IRA, the IRA holder is not permitted to borrow even $1 dollar from the IRA without triggering a prohibited transaction.

4. Use Nonrecourse Leverage and Pay No Tax: With a Solo 401(k) Plan, you can make a real estate investment using nonrecourse funds without triggering the Unrelated Debt Financed Income Rules and the Unrelated Business Taxable Income (UBTI or UBIT) tax (IRC 514).  However, the nonrecourse leverage exception found in IRC 514 is only applicable to 401(k) qualified retirement plans and does not apply to IRAs. In other words, using a Self-Directed SEP IRA to make a real estate investment (Self Directed Real Estate IRA) involving nonrecourse financing would trigger the UBTI tax.

5. Open the Account at Any Local Bank: With a Solo 401k Plan, the 401k bank account can be opened at any local bank or trust company.  However, in the case of a Traditional Self Directed IRA, a special IRA custodian is required to hold the IRA funds.

6. No Need for the Cost of an LLC: With a Solo 401(k) Plan, the plan itself can make real estate and other investments without the need for an LLC, which, depending on the state of formation, could prove costly. Since a 401(k) Plan is a trust, the trustee on behalf of the trust can take title to a real estate asset without the need for an LLC.

7. Better Creditor Protection: In general, a Solo 401(k) Plan offers greater creditor protection than a Traditional IRA.  The 2005 Bankruptcy Act generally protects all 401(k) Plan assets from creditor attack in a bankruptcy proceeding.  In addition, most states offer greater creditor protection to a Solo 401(k) qualified retirement plan than a Traditional Self-Directed IRA outside of bankruptcy.

The Solo 401k plan is unique and so popular because it is designed explicitly for small, owner-only business.  The many features of the Solo 401k plan discussed above is why the Solo 401k Plan or Individual 401k Plan it so appealing and popular among self-employed business owners.

To learn more about the benefits of a Solo 401(k) Plan vs. a Self-Directed IRA, please contact a tax professional at 800-472-0646.

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Jun 08

IRA Financial Group Individual 401k vs. Scottrade

The Solo 401K Plan, also known as the Individual 401K or Self Directed 401K Plan is an IRS approved plan that was designed specifically for the self-employed or small business owner with no employees other than the owners(s). Since the adoption of the 2002 Economic Growth and Tax Reconciliation Act, the Solo 401K Plan has become the most popular retirement plan for the self-employed.

When it comes to deciding what type of Solo 401K plan is best for you and your business, it is important to look at all the options the plan provides to make sure it will satisfy your retirement planning, tax, and investment goals.

Most banks and financial institutions, such as Scottrade offer Solo 401K Plans. The Solo 401K Plans are typically quite restrictive and only permit the plan participant to make limited investments without benefiting from most of the available IRS approved options such as the tax-free loan and Roth contributions. However, if you do not want to be forced to invest all your hard earn retirement savings in the stock market, than the Scottrade Solo 401K Plans may end up not being very attractive.  In addition, the Scottrade Solo 401K Plans will not offer a loan feature or allow you to make Roth Type contributions.

IRA Financial Group’s Solo 401K plan is unique and so popular because it is designed explicitly for small, owner only business.

Unlike Scottrade’s Solo 401K Plan, by adopting IRA Financial Group’s Solo 401K Plan, you can serve as trustee of the plan and make traditional investments as well as non-traditional investments such as real estate tax-free and without custodian consent.

IRA Financial Group Individual 401k vs. Scottrade

Have an investment you want to make with your retirement funds, like real estate, but Scottrade won’t let you do it even though it ‘s approved by the IRS?  Then IRA Financial Group’s Solo 401K Plan is your solution.

Make high Tax-Free Contributions: Similar to the Scottrade Solo 401K Plan, with IRA Financial Group’s Solo 401K Plan you can to make tax-deductible annual contributions up to $54,000 annually with an additional $6,000 catch up contribution for those over age 50 for 2017.

Tax-Free Loan:  Fidelity Solo 401K Plan offers no loan feature, while IRA Financial Group’s Solo 401K Plan allows plan participants to borrow up to $50,000 or 50% of their account value (whichever is less) for any purpose. 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 significant advantage of the IRA Financial Group Solo 401k Plan versus the Scottrade Solo 401K Plan is that it offers you checkbook control over your retirement funds. With the Scottrade Solo 401K Plan, the plan participant is relegated to making traditional investments such as stocks and or mutual funds.  In addition, the Solo 401KPlan account is required to be opened at Scottrade.  With IRA Financial Group’s Solo 401K Plan, the plan account can be opened at any local bank, including Chase, Wells Fargo, and even Fidelity.  In addition, with IRA Financial Group’s Solo 401K Plan, the plan participant can make almost any traditional as well as non-traditional investments, such as real estate, precious metals, tax liens, third-party lending, notes, stock, private business, and much more. With IRA financial Group’s Solo 401K Plan, the Plan participant has the freedom to make the investments he or she wants while at the same time to open the 401K account at any local bank or credit union. With IRA Financial Group’s Solo 401K Plan, you can serve as the trustee of the plan giving you checkbook control over your retirement funds. In contrast to Scottrade’s Solo 401K Plan, which restricts your investment opportunities to stocks and mutual funds, with IRA Financial Group’s Solo 401K Plan, making a traditional as well as non-traditional investment such as real estate is as simple as writing a check.

After-Tax Contributions: Scottrade’s Solo 401K Plan does not allow for Roth or after-tax contributions. IRA Financial Group’s Solo 401K Plan contains a built in Roth sub-account which can be contributed to without any income restrictions.  In addition, Scottrade’s Solo 401K Plan does not allow for in-plan Roth conversions or rollovers.  Whereas, IRA Financial Group’s Solo 401K Plan allows for in-plan Roth conversions. However, the Solo 401K Plan participant must pay income tax on the amount converted.

Easy Administration:  Like Scottrade’s Solo 401K Plan, IRA Financial Group’s Solo 401K Plan is easy to operate. There is generally no annual filing requirement unless your solo 401K Plan exceeds $250,000 in assets, in which case you will need to file a short information return with the IRS (Form 5500-EZ). 
Unlike Scottrade, however, the tax attorneys at the IRA Financial Group will assist you in completing this form is required

No Tax on Real Estate Financing:  Since the Scottrade Solo 401K Plan does allow for real estate investments, you would not be able to benefit from the ability to use nonrecourse financing tax-free when making real estate investments with Solo 401K retirement funds. IRA Financial Group’s Solo 401K Plan will allow one to use nonrecourse leverage tax-free when making real estate investments with plan assets.

IRA Financial Group will take care of setting up your entire Solo 401k Plan. The whole process can be handled by phone, email, fax, or mail and typically takes between 2-7 days to complete, the timing largely depending on the state of formation and the custodian holding your retirement funds. Our 401k experts and tax and ERISA attorneys are on site greatly reducing the set-up time and cost. Most importantly, each client of the IRA Financial Group is assigned a tax attorney to help with the establishment of the Solo 401k Plan. You will find that our fee for this service is significantly less than other companies that perform the same or similar services.

To learn more about the advantages of choosing the IRA Financial Group’s Solo 401K Plan over the Scottrade Solo 401K Plan, please contact a tax professional at 800-472-0646 or visit www.irafinancialgroup.com.

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May 22

Why a Solo 401(k) is the Best Retirement Plan for the Self-Employed

Here’s a great article from Dough Roller touting the advantages of the Solo 401(k) Plan

If you’re self-employed, you have several retirement plan options available to you as an individual or small business owner. The best retirement plan for the self-employed, though, is probably the Solo 401(k).

Also called an individual 401(k), it has similar advantages to the traditional, employer-sponsored 401(k) plans available to large companies. However, it brings with it more benefits because you’re self-employed.

How a Solo 401(k) Plan Works

A Solo 401(k) plan is essentially a 401(k) for a self-employed individual. But there are several features of the plan that distinguish it from the larger, employer-based 401(k) plans. These include:

  • Since you are the business owner, you act as both employer and employee on the plan.
  • A Solo 401(k) plan is just for the owner of the business and the owner’s spouse; it is not available for employees of the business.
  • The amount you can contribute to a Solo 401(k) are generally more generous than they will be for an employee participant in typical large company 401(k) plans.
  • You can set up a Solo 401(k) even if you are an independent contractor or a freelancer.

Solo 401k Contribution Limits

As an employee of the business, contribution limits to a solo 401(k) plan are exactly the same as they are for a traditional 401(k) plan. You can contribute up to 100% of your salary or up to the contribution limit, whichever is greater. The current contribution limit for 2017 is $18,000 of your salary, or up to $24,000 if you’re age 50 or older.

It’s here that being the employer comes in handy.But since you are also the employer in the solo plan, you can also contribute as much as 25% of your net income to the plan as a profit-sharing contribution. (See IRS examples of the

As an employer, you can also contribute as much as 25% of your net income to the plan as a profit-sharing contribution. (See IRS examples of the employer matching contribution — it varies by business entity.)

Solo 401k Contribution Deadline

One other important point about the solo 401(k) plan is that you must make your contributions to the plan no later than the end of the calendar year. That means that you must make your contribution no later than December 31 in order for the contribution to be deductible for the tax year in question.

This is unlike contributions to IRA plans, which allow you to make deductions up until the filing deadline for the preceding tax year.

Simplicity

One of the biggest advantages of a Solo 401(k) is that you can essentially set it up similar to a self-directed IRA. That means that you are free to choose your investment trustee. You can also select a discount investment broker. This will provide you with an opportunity for unlimited investments and very low fees.

This is unlike many traditional 401(k) plans, which often limit your investment options to a few mutual funds and charge high plan fees.

Very Generous Contributions

As I noted above, with the Solo 401(k) you can make both employee and employer contributions. So, let’s say you’re self-employed as a sole proprietor and report your income and expenses on Schedule C of your income tax return. If your net income from the business is $100,000, you can contribute $18,000 as an employee. But then you can also contribute 25% of the net profit as the employer.

This means that your total contribution could reach $43,000!

That’s an enormous retirement contribution based on a $100,000 income. If you are in the 25% federal tax bracket, for example, a $43,000 contribution could result in a tax savings of $10,750 (although it’s important to consult a tax expert to be sure).

This is much more generous than other types of self-employed retirement plans. For example, let’s take the contribution scenario above. In it, you are contributing 43% of your income to your retirement plan using the Solo 401(k).

SEP IRA

Under a SEP IRA, your contribution would be limited to 20% of the same income, or $20,000. (The SEP IRA provides for a deduction equal to 25% of your net income, after the deduction for the contribution is removed from your income… That means that the net contribution to a SEP IRA is effectively limited to 20% of your income.)

SIMPLE IRA

Under a SIMPLE IRA, your contribution limit is even lower. The maximum contribution that you can make as an employee is $12,500. (This bumps up to $15,500 if you are age 50 or older.) SIMPLE IRAs also provide for an employer match. As the employer in the business, you can provide either a 3% matching contribution, or a 2% non-elective contribution (up to $5,000). That means that your total contribution to the plan is limited to a total maximum of $20,500 per year.

Traditional IRA

And, of course, a traditional IRA or a Roth IRA limits your annual contribution to $5,500, or $6,500 if you are 50 or older.

The maximum contribution to any and all tax-sheltered retirement plans, including the Solo 401(k) plan, is $54,000 for 2017. However, with a Solo 401(k) plan, you can reach that maximum much more quickly than you can with other self-employed retirement plans.

There is one important limitation pertaining to S corporations: distributions paid from an S corporation are considered dividends, and are therefore not considered earned income. For this reason, you cannot make contributions to a Solo 401(k) plan that include your distributions from the S Corp.

You Can Add a Solo Roth 401(k) to the Mix

Just as with a traditional 401(k), you can allocate part of the plan to a Solo Roth 401(k) plan. That will enable you to allocate up to $5,500 of your employee contribution to the Roth portion. If you are age 50 or older, up to $6,500 can go toward the Roth portion. The remainder of your allowed contribution will go into the regular portion of your Solo 401(k) plan.

The employer matching portion can only go into the regular part of your Solo 401(k), and not the Roth portion.

You Can Include Your Spouse

An owner cannot add employees to a Solo 401(k) plan. He or she can, however, add a spouse. Your spouse can make contributions based on his or her earnings from the business.

For example, let’s say that you have an S corporation. You take a salary of $50,000 per year, and your spouse takes an equal amount. You can each make a contribution of up to $18,000 on your respective salaries. As an employer, you can then match up to 25% of the same amount.

Converting the Solo 401(k) to a Traditional 401(k)

Many businesses start out as one-person affairs. The owner starts out working for himself and only adds employees as the business grows.

A Solo 401(k) plan really shines when you hire employees. Why? Because you can convert these plans to a traditional 401(k) plan as soon as you begin adding employees.

When you start adding staff, you can easily convert your Solo 401(k) to a traditional plan. As you do, you can enable your employees to participate in the plan. That’s a big advantage because offering a 401(k) plan — particularly as a small business — is an attractive advantage for drawing potential talent. Many employees prefer to work in a business that offers a retirement plan. With the Solo 401(k), you will already have a plan in place when that day comes.

As with all things related to retirement plans, be sure to consult a tax expert before making any decisions.

If you would like more information about the Solo 401(k) plan, please contact a 401(k) at the IRA Financial Group at 800.472.4646.

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