An Individual 401(k) plan also sometimes called 401k-I, Solo 401k Plan or Self-Directed 401k is designed for self-employed individuals or business owners without employees. Our SkyOak Advisors can set up an Individual Plan for you quickly through our Custodian. A TPA, Third Party Administrator, is not necessary with an individual 401(k) Plan.
Advantages of Using a Self-Directed 401K
Individual 401K Plan is such a popular retirement solution for small business owners because the IRS designed it specifically for them. It can be designed specifically to allow plan participants to diversify their retirement portfolio by making traditional as well as non-traditional investments such as real estate and precious metals. The Individual 401K Plan can be adopted by a sole proprietorship, LLC, Partnership, or Corporation.
There are a number of features that make the Individual 401K Plan so appealing and popular among self-employed business owners.
High Contribution Limits: Under the Individual 401(k) contribution rules, a plan participant can maximize employee deferral contributions That amount can be made in pre-tax or after-tax (ROTH). On the profit sharing side, the business can make a profit-sharing contribution up to a combined annual maximum, including the employee deferral.
Tax-Free Loan: With an Individual 401K Plan, a plan participant is eligible to borrow up to a maximum $50,000 or 50% of their account value whichever is less for any purpose, including paying personal expenses such as credit card bills, mortgage payments, personal or business investments, a car, vacation, or anything else. The loan has to be paid back over a five-year period at least quarterly at a minimum prime interest rate (you have the option of selecting a higher interest rate). There is no pre-payment penalty.
Investment Opportunity: With an Individual 401K, you will be able to invest in almost any type of investment opportunity that you discover, including: Traditional assets such as stocks, bonds, mutual funds, and ETFs, as well as Non Traditional investments such as real estate, private mortgages, private loans, private company stock, oil and gas limited partnerships, precious metals, horses, and intellectual property. The income and gains from these investments will flow back into your Self-Directed Individual 401K Plan tax-free. SkyOak can facilitate your investment in non-traditional assets through our custodian Equity Institutional.
Roth Contributions: The Individual 401K Plan contains a built in Roth sub-account which can be contributed to without any income restrictions. An Individual 401K Plan will allow you to make pre-tax and/or after-tax (Roth) employee deferral contributions to your Plan.
Easy Administration: The Individual 401K Plan is easy to operate and effortless to administer. There is generally no annual filing requirement unless the assets in your Individual 401K Plan exceeds $250,000, in which case you will need to file a short information return with the IRS (Form 5500-EZ).