Checkbook Solo 401k: Is It Better Than A Self-Directed IRA?

Self-Directed IRAs, Checkbook-Control IRAs, and IRA-LLCs are powerful alternative investment vehicles with great tax benefits. However, for those that qualify, Checkbook Solo 401K Plans are far better vehicles for retirement-account real estate investing. In this post will introduce the fundamentals of Checkbook Solo 401k Plans and their benefits.

What is a Checkbook Control Solo 401k Plan?

The tax code provides for 2 types of tax-advantaged retirement plans: (1) Individual Retirement Arrangements, referred to as IRAs and (2) Employer Sponsored Plans, such as 401(k)s, referred to as Qualified Plans.

IRA-based retirement accounts are relatively simple plans with limited flexibility. Qualified Plans are exceedingly complex, but can be very flexible and provide very attractive features. A Completely Self-Directed Solo K, or Checkbook 401k, combines the simplicity of IRAs with the flexibility of Qualified Plans.

What are some powerful Solo 401k investing and tax features?

How do I qualify for a Checkbook-Control Solo 401K?

To qualify for a Checkbook Control Solo K you (a) must have some form of self-employment income and (b) must not have W-2 employees that work more than 1,000 hours per year, other than business partners and spouses.

If my spouse works for me can I still have a Checkbook Solo 401(k)?

Yes, you certainly can. In fact, by employing your spouse you can double your Solo K benefits, so go ahead and employ him or her.

If I have a partners, can I have a Solo 401k?

Yes, if you have partners that work in your business you can still have a Solo 401k.

What assets can a Checkbook Solo 401k invest in?

Checkbook K Plans can invest in anything other than certain collectibles, as outlined in Section 408 of the tax code.

Examples of Solo 401k investments are:

How do I set up a Checkbook Solo 401k Plan?

Checkbook Solo 401k Plans require specially drafted IRS-approved plan documents. With those documents you set up a bank account and begin investing. The actual implementation process has many steps – but the core concept is exceedingly simple.

What is the deadline for establishing a Solo 401k Plan?

A Solo 401k plan must be established before the end of the tax year, by December 31. For a Solo 401k plan to be considered established, the plan documents must be signed before year-end. It does not have to be funded by then. The Solo 401k Bank Account can be opened after the year-end, as well.

Checkbook Solo 401K Plans are incredibly powerful investing vehicles for those that qualify. They offer benefits and features greatly exceeding those of Self-Directed IRAs – especially for real estate investors – but have some additional requirement to qualify and maintain.