Solo 401(k) – Basics

The Process

Here’s what happens when you set up a self-directed Solo 401(k):

1. Broad Financial creates a customized IRS-approved Solo 401(k) Plan for you.
2. The Plan contains a Trust, which appoints you as the sole Trustee of your Solo 401(k) Plan.
3. As Trustee, you open a checking account in the name of the Trust at the bank of your choice. This checking account will serve as the vehicle for placing all investments or loans for your Solo 401(k) Plan.
4. You fund your Solo 401(k) by transferring funds from an existing retirement account or by making an initial contribution.
5. Begin investing by simply writing a check.

Benefits

• Diversification – investment choices for a Self-Directed Solo 401(k) are virtually unlimited.
• Reduced costs – because the Self-Directed Solo 401(k) has no need for a custodian, transaction fees are entirely eliminated.
• Checkbook control – you retain complete control of your investment funds via your designated checking account. This allows you to take advantage of investment opportunities with a speed that is not possible in a traditional Solo 401(k).
• Leverage – you can take a loan from your Solo 401(k) up to the amount of $50,000.
• Excellent tax deferment potential – you can contribute up to $61,000 (or $67,500 if aged 50 or older) a year to your plan.

Restrictions

When investing your Self Directed Solo 401(k), it’s important to have a knowledge of permissible investments and accompanying restrictions.

Investments

The choices of investment are virtually unlimited and include real estate, private business, stocks and bonds, tax liens, commodities, life insurance contracts, and intellectual property. The only restricted investment is collectibles (e.g. baseball cards, comics, and art).

Prohibited Transactions

Simply said, you cannot use your Solo 401(k) funds to bestow a present benefit to you or to any close relations. Examples of prohibited transactions include making personal use of a property owned by your Solo 401(k), receiving a salary or fee to manage your Solo 401(k), or renting a property owned by your Solo 401(k) to a disqualified person.

Eligibility

You are eligible for a Solo 401(k) if you can claim some self employment income and have no full-time employees. A full-time employee is generally defined as any person who works for you (or your company) for 1,000 or more hours per year. Learn more about Broad’s Ultimate Solo 401(k).