Solo 401k plan is the preferred choice of investment for those wishing to contribute towards a self-employment retirement plan as it offers several benefits and advantages. These plans are available to individuals who are self-employed and to business owners who don’t hire full time W-2 employees. Some of the entities that qualify for Solo 401K plans include partnerships, C corporations, proprietorships, subchapter S corporations and LLCs.
A few of the advantages when investing in Solo 401k plans include:
1) Tax-free loans are allowed with these plans
2) These plans have a high contribution limit of $ 50,000 for people under the age of 50 and $ 55,500 if age is more than 50.
3) The contributions made to these plans are tax deductible
4) After the person reaches the age of 59 1/2, withdrawals from the plans can be made without any penalty. However, they may have to pay federal and state taxes.
If you are excited about investing in Solo 401k Plans you may be wondering what the most perfect plan is for you and your needs. As all 401k plans are approved by the IRS, when looking for the best one for you, you should contemplate on the following four items below before making a decision:
If you are searching for a plan that can be used as a substitute to your investments in assets, such as real estate (residential, business or foreign etc.), precious metals (platinum, gold), tax liens and even trust deeds, a self-directed 401k plan with checkbook control would be the best choice. However if you prefer investing in traditional investments like mutual funds, ETF and stocks, an individual 401k plan would suit your needs best. There are many well-known financial institutions such as TD Ameritrade, Schwab and Fidelity that offer individual 401k plans. Selecting a plan that meets your investment goals without increasing your risk is always the goal.
If you intend to borrow from your solo 401k, then a self-directed Solo 401k plan would be the best option. In this case it would be best to avoid selecting individual 401k plans that are offered by Ameritrade, Vanguard, Fidelity, E-Trade and Schwab as they don’t offer the Solo 401k loan benefit.
One of the most important factors to consider when investing in these plans is the service offered by the provider. Service becomes even more important if you intend to make investments in alternative investment products. It is also wise to invest in a plan that contains a Solo 401k loan provisions and offers continuing Solo 401k plan maintenance.
Most people are under the impression that the fee charged by solo 401k providers like Charles Schwab and Fidelity are reasonably low and cost effective. However upon reading the fine print you will find that their charges are unusually higher. These firms will not only charge a fee for the underlying stock or mutual funds but will also charge you a fee for stock trading on top of that. Selecting a Self-Directed Solo 401k provider allows you more authority as you have checkbook control and are being charged one flat yearly fee.
All in all, the best solo 401k providers tend to be the ones who offer self-directed solo 401k plans with checkbook control options, Solo 401k loan options, alternative investment options as well as full service options, all at one affordable and disclosed rate.