Confused about whether to choose a self-directed 401(k) or a self-directed IRA for your retirement investments? Let us shed light on this important decision! In this informative video, we’ll compare and contrast the unique features of self-directed 401(k)s and self-directed IRAs, enabling you to make an informed choice.

A self-directed 401(k) and a self-directed IRA both offer individuals the ability to take control of their retirement investments and diversify beyond traditional options. However, they differ in key aspects. Join us as we explore the distinctions between these powerful retirement savings vehicles.

Furthermore, Rick discusses the advantages of a self-directed 401k vs a self-directed IRA. Some advantages are higher contribution levels, matching, and no income limitations. You can declare your personal contribution as a ROTH contribution. SD 401k allows you to directly or indirectly be apart of the real estate world. This is possible through non recourse loans, which Rick explains further here:

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Timestamps
0:00 Difference between Self Directed 401k vs Self Directed IRA
0:50 Options for investing in real estate with your retirement account
1:14 What is Non-recourse Laon?

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Self-Directed 401k vs Self-Directed IRA: Advantages of SD 401k over a SD IRA

When it comes to planning for retirement, self-directed investment options have gained popularity among individuals seeking more control over their retirement savings. Self-directed accounts, such as Self-Directed 401k and Self-Directed IRA, allow investors to make a wide range of investment choices beyond the traditional options typically offered by retirement plans. While both SD 401k and SD IRA offer numerous benefits, there are unique advantages associated with having a self-directed 401k over a self-directed IRA.

One of the primary advantages of a self-directed 401k over an IRA is the higher contribution limits. As of 2021, individuals under the age of 50 can contribute up to $19,500 to their 401k, with an additional catch-up contribution of $6,500 for those 50 and older. On the other hand, the contribution limit for an IRA is much lower, with a maximum of $6,000 for individuals under the age of 50 and an extra $1,000 catch-up contribution for individuals 50 and older. The higher contribution limits of the 401k allow individuals to save and grow their retirement funds at a faster rate.

Another advantage of a self-directed 401k is the potential for employer matching contributions. Many employers offer matching contributions as part of their employee benefits package. This means that for every dollar an employee contributes to their 401k, their employer will also contribute a certain percentage, up to a specified limit. This employer match is essentially free money that can significantly boost an individual’s retirement savings. Self-directed IRAs do not offer this benefit, as they are typically not sponsored or matched by employers.

Furthermore, self-directed 401k accounts have a unique loan provision that allows participants to borrow against their retirement savings. If you find yourself in a financial bind or need access to cash for emergencies, a self-directed 401k allows you to loan up to 50% of your vested account balance, or up to $50,000, whichever is lower, without incurring any penalties. This option provides individuals with a level of flexibility and financial security that self-directed IRAs lack, as IRAs do not permit participants to take loans against their accounts.

Additionally, self-directed 401k accounts offer more robust asset protection. In the event of bankruptcy or lawsuits, retirement funds held in a self-directed 401k are typically safeguarded to a greater extent compared to IRAs. Federal law provides explicit protections for ERISA-qualified plans, such as 401ks, shielding these funds from judgments and creditors.

It’s worth noting that both self-directed 401k and self-directed IRAs offer tax advantages. Contributions to both types of accounts can be made on a pre-tax basis, allowing individuals to lower their taxable income for the year. Additionally, any investment gains made within the accounts are tax-deferred until distributions are taken during retirement.

In conclusion, while both self-directed 401k and self-directed IRA accounts offer advantages for those interested in taking control of their retirement investments, the self-directed 401k has unique benefits. These advantages include higher contribution limits, potential employer matching contributions, borrowing provisions, and increased asset protection. However, it is essential to consult with a financial advisor or tax professional to determine which option aligns best with your specific retirement goals and investment preferences.