In today’s video, Adam Bergman, Esq. and Isaac Rodriguez, a client of IRA Financial, discuss Isaac’s experience with having a Solo 401(k), eligibility requirements, and all the other basics that you need to know.
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About IRA Financial:
IRA Financial Group was founded by Adam Bergman, a former tax and ERISA attorney who worked at some of the largest law firms. During his years of practice, he noticed that many of his clients were not even aware that they can use an IRA or 401(k) plan to make alternative asset investments, such as real estate. He created IRA Financial to help educate retirement account holders about the benefits of self-directed retirement plan solutions.
IRA Financial is a retirement account facilitator, document filing, and do-it yourself document service, not a law firm. IRA Financial Group does not provide legal services. No attorney-client relationship exists between Client and IRA Financial, its management, salespersons or IRA Financial’s in-house legal counsel. IRA Financial Group provides IRA retirement facilitation service and CANNOT provide Client with legal, investment, or financial advice. Prior to making any investment decisions, please consult with the appropriate legal, tax, and investment professionals for advice.
IRA Financial is not engaged in rendering legal, accounting or other professional services. If legal advice or other professional assistance is required, the services of a competent professional person should be sought. (From a Declaration of Principles jointly adopted by a Committee of the American Bar Association & a Committee of Publishers and Associations.). The scope of Professional Services does not include the costs of any custodian related services.
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Solo 401(k) Basics
A Solo 401(k), also known as an Individual 401(k) or Self-Employed 401(k), is a retirement savings plan specifically designed for self-employed individuals or small business owners with no employees other than themselves or their spouse. This type of retirement plan offers numerous benefits and advantages for those who qualify.
Contributions
One of the main benefits of a Solo 401(k) is the ability to make significant contributions to the plan. As of 2021, individuals can contribute up to $19,500 per year as an employee, plus an additional $6,500 if they are age 50 or older. In addition, as the employer, individuals can contribute up to 25% of their net self-employment income, up to a total annual contribution limit of $58,000 (or $64,500 if age 50 or older).
Tax Benefits
Contributions to a Solo 401(k) are made on a pre-tax basis, which means that they are deducted from taxable income. This allows individuals to reduce their taxable income and lower their overall tax liability. In addition, earnings in the Solo 401(k) plan grow tax-deferred until withdrawals are made in retirement, at which point they are taxed as ordinary income.
Investment Options
A Solo 401(k) offers a wide range of investment options, including stocks, bonds, mutual funds, and exchange-traded funds (ETFs). This flexibility allows individuals to tailor their investment strategy to their specific goals and risk tolerance. Some Solo 401(k) providers also offer the option to invest in alternative assets such as real estate, precious metals, or private equity.
Loan Provision
Another advantage of a Solo 401(k) is the ability to take out a loan from the plan. Individuals can borrow up to 50% of their account balance or $50,000, whichever is less. The loan must be repaid within five years, with quarterly payments of principal and interest.
Rollover Options
If an individual decides to change jobs or retire, they have the option to roll over their Solo 401(k) into another retirement account, such as an IRA or a new employer’s 401(k) plan. This allows for continuity of savings and avoids penalties for early withdrawal.
In conclusion, a Solo 401(k) is a powerful retirement savings tool for self-employed individuals and small business owners. With high contribution limits, tax benefits, investment options, loan provisions, and rollover flexibility, it offers a comprehensive solution for building a secure financial future. It is advisable to consult with a financial advisor or tax professional to determine if a Solo 401(k) is right for your individual situation.
I work at a non-profit that has a simple ira. I live in a state that taxes distribution from simple ira's , BUT does NOT tax distributions from 401k's. Can I roll over my simple ira to a solo 401k? I would just create a small side business that might not earn any money 😉
Is there anyway you can expand upon the part time employee qualifications/pre-requisites. I even called the IRS and got transferred around for 2 hours, no one could tell me the rules to qualify for Solo401K with part time employees. I understand that a single employee can't work more than 1000 hours to qualify. "But haven't heard about the 3 years for 500 hours." Does that mean an individual employee can't work 500 hours for 3 years to qualify? I am a single member llc. I have 4-6 'very' part time employees who all individually work way less than 1000 hours per year. Some of them have been with me for almost 3 years tho. Do I qualify? Is there a link to a resource you can post that shows the specifics of the part time employee hours/years requirements?
I have a question about my non-prototype 401k account at Fidelity. I own 50% of a P.C. (S corporation).
Could I open a Roth Solo 401(k) or Mega Backdoor Roth Solo 401(k) with it?
If not, can I open such account by borrowing 50% of my current balance?
Thanks a lot for your time.
the guy on the left needs a bigger shirt or at least an undershirt. Yikes!
Good video. The guy in the white shirt needs to slow down on the rapid fire jargon though.
I just learned about this option today but still confused…I have a 403B thru my day job employer that I plan on contributing full 30k max (over 50 years old)…I also doordash on the side..from what I understand, in addition to the contribution as an employee, Solo401K allows you to also contribute as an employer above and beyond the deferral limit of 30k in the form of “profit sharing” off of your earned income at 20-25%??..that is what allows total contributions to get to 66-73k range I see…am I able to contribute 30k in salary deferral in day job and then just contribute the “profit sharing” portion to the Solo401K?