What Is a Checkbook Solo 401K Plan?
Solo 401(k) Key Features
- Deduct up to $120,000 annually
- No need for a qualified custodian
- Cost-effective administration
- Simple to manage
- Invest in alternative assets
- Borrow up to $50,000
- Pre-tax contributions
- Roth Contributions
- Contributions are discretionary
- No real estate UDFI
- Purchase Life Insurance
- Consolidate with roll-overs & transfers
A Checkbook Control Solo 401k Plan is a specially-designed tax and investment vehicle that is based on what the IRS refers to as a: One-Participant 401(k), Solo 401(k), Solo-k, Uni-k, and One-Participant k. A Checkbook Solo 401(k) may also be called an: Individual 401(k), Self-Employed 401(k), or i401k and is available to anyone with self-employment income from an active trade or business. The business may be an unincorporated sole-proprietorship, partnership, corporation (S-corp or C-corp), or Limited Liability Company (LLC).
Solo 401(k)s allow for much higher tax-deductible contributions and greater flexibility than Checkbook IRAs. Solo 401K Plans allow for both profit-sharing and salary-deferral contributions with high limits. Each plan participant can deduct up to $54,000 – up to $60,000 if aged 50 and over. That’s $108,000 for couples below age 50 and $120,000 for couples aged 50 and over.
Unlike IRAs, Solo 401(k) plans don’t require a qualified custodian to hold plan assets. You get complete control of investing as the plan trustee and administrator. Investing is as simple as opening a bank account in the name of the Solo 401(k) Trust from which checks can be written to invest in the assets of your choice.
Solo 401(k) contributions are completely discretionary, so adopting a plan that allows high deductions won’t obligate you to contribute annually.
Like all Checkbook Retirement Plans, with a Solo 401k you can invest in real estate, precious metals, private loans, cryptocurrency (Bitcoin, Ethereum, Ripple and all other virtual currencies), mortgages, merchant cash advances, asset-based lending, litigation finance, private placements and just about anything else you’d like – other than collectibles.
What are some of the special features of a Solo 401(K)?
As a qualified retirement plan, Solo 401(k)s can be drafted to include some special features. The plan can be designed to allow for Solo 401K loans to the plan owner of up to $50,000 – to be used for any purpose. The plan can allow for Designated Roth 401k Subaccounts and after-tax salary deferral contributions for totally tax-free growth.
A Solo 401k is an ideal vehicle for leveraged real estate transactions as, unlike IRAs, it is not subject to tax on Unrelated Debt Financed Income (UDFI) resulting from non-recourse debt incurred to acquire or improve real property.
In addition to all the alternative and traditional assets that can be invested in, a Solo 401k can – subject to limitations – purchase life insurance policies using pre-tax funds.
Is a Solo 401k right for you?
If you have self-employment income of any type and have no full-time non-owner employees a Solo 401k is right for you.
Having business partners or employing a spouse does not disqualify you from sponsoring a Solo 401k. It is only non-owner non-spouse employees aged 21 years and older working more than 1,000 hours per year that are a disqualifying factor.
In fact, employing your spouse will enable you to double your Solo 401K tax and investment opportunities because spouses are entitled to the same deductions and contributions, based on their compensation from the sponsoring business.
Even those that are employed by others and participate in a workplace-sponsored retirement plan are eligible for a Solo 401k if they also have self-employment income. There are no revenue or income thresholds to qualify – so long as you’re engaged in a trade or business of any sort for the purpose of generating income you’re eligible. Once formed, you can rollover funds from other retirement accounts – except Roth IRAs – to increase the amount of investable cash in your Solo 401k and leverage its incredible power.
If you have ownership shares of other businesses that employ full-time employees the Controlled Group Rules apply and you may not qualify for a Solo 401k.
How Do I Set-Up a Checkbook Solo 401k?
The Checkbook Solo 401K formation process is straightforward. Following is a broad overview of Checkbook 401k set-up:
1) ReSure designs your Solo 401k plan to give you the flexibility you want
2) ReSure provides your Solo 401k plan documents naming you as trustee, IRS approval letter, and plan EIN
3) Use the Solo 401K documents to open Solo 401k bank accounts at the financial institution of your choice
4) Fund the Solo 401k trust account through contributions and rollovers
5) Write checks to make Solo 401K investments in assets that you choose