Solo 401k or IRA? The deck is loaded.
No big surprise given our name has '401k' in it we focus on 401ks. Why did we choose them over IRAs? Because the Solo 401k is a safer structure and pays less in taxes in pretty common scenarios for both real estate and metals investors.
They're better for most Americans and not enough people know it.
Advantages of the Solo 401k
- Safety - We're talking about checkbook control over your retirement money for decades. What if someone makes a mistake and you don't notice? What if something isn't recorded right or is done based on 'common sense' but not checked for compliance? In an IRA, this can, and has, resulted in full distributions and penalties that can exceed the full value of the account. In most cases a Solo 401k could do the same thing and face no penalty (or a relatively minor one). Slash risk just by using the right structure.
- Loans - Have something come up in life where you could use cash from your retirement account? Maybe pay off an unexpected bill or to fund the down payment on a great rental? The Solo 401k will let you borrow 1/2 your balance, up to $50,000, for whatever purpose you need. No taxes involved. An IRA? No loans allowed - period.
- Co-investing - The Solo 401k is the most established, least expensive, way for your retirement account to invest alongside with the retirement account of a spouse, business partners, or even children. A higher combined balance allows different opportunities and you can do it all without the complexity and cost of multiple IRA LLCs and Trusts.
- It's less expensive - No per-asset or account-sized fees benefit not just large accounts, but even smaller accounts quickly save money by paying more the first year to setup a single Solo 401k plan and maintain it instead of opening and maintaining multiple IRAs.
- No income limits. High contribution caps - With no limit on your income, a Solo 401k lets you save Roth and Traditional money each year in whatever ratio is best for you. With an initial cap of over $50,000 per person, per year, they cover most savings needs out of the gate. ...Need to save more? Call us. We've designed specialized programs to push hundreds of thousands per year off your AGI and into your 401k.
- Less paperwork - Real estate investors who have a mortgage on their IRA property are staggered at the IRS paperwork and tax bill that creates. It's a terrible surprise at best. Hours of extra work each quarter- money out of your IRA and to your CPA. ...and the Solo 401k is exempt from it. No extra work. No unnecessary costs.
- Lower taxes - Because the Solo 401k is exempt from the 'debt financed income' tax provisions that impact all IRAs (even Roth IRAs), real estate investors can save not only paperwork, but thousands (if not tens of thousands) in taxes on every deal they finance. (And if you didn't know and already have financed property in an IRA contact us and we'll help you sort out the tax bill and migrate to a Solo 401k to avoid them moving forward.)
Advantages of an IRA
- Anyone can have one - While approximately 2/3 of Americans can have a Solo 401k (though most don't realized it), that still leaves 1/3 who can't but can have an IRA.
- Inherited and Roth IRAs have to stay IRAs - While any other retirement account can rollover into a Solo 401k, for Roth and Inherited IRAs the IRA structure must be used as they can't (reasonably) change.
- Single passive assets - When you want to buy one or two, static, assets that aren't time sensitive (like an interest in a private placement or vacant lot) then the right IRA will save you money of the 401k structure (annual costs will likely be close to the same, but you'd save on setup).
So why do institutions open IRAs, SEPs, and SIMPLEs instead of Solo 401ks unless you specifically ask?
Which is easier to sell:
- A tool people have heard of and are used to.
- A tool people haven't heard of that fixes the old tool they didn't realize was broken.
Yeah. When nearly 9-out-of-10 people first search for a 'self directed IRA', you can understand why many firms don't bother to learn or promote anything else. IRA costs are generally higher so it's the more profitable option, virtually anyone can have one, and only most people can have a Solo 401k.
That's why you see more IRA promotion. What matters is which is better for you.
YES. You can (likely) convert your IRA to a Solo 401k.
- Make a lot of money?
- Make little money?
- Have a job with a 401k already?
- Just starting to save?
- Protecting seven-figures or better?
- Basically retired?
Only Inherited and Roth IRAs are stuck. Any other retirement account can be converted, tax-free, into a Solo 401k and we'll help make that happen for you. Own a business with full-time employees? Ok, we can't do a Solo 401k for you; but we could make a group plan for your whole business.
You're one of these cases and we hope you can use what we do to vault your retirement's growth and income to a new level.
Send us an email [email protected], start a chat, or call 888-509-1551 and we'll help make sure it'll work for you.