A self-directed 401(k) puts you in the driver’s seat for any investment activities you want to pursue. Employers may place certain stipulations on (or outright disallow) transferring or rolling your 401(k)-held cash or assets. Others may not allow alternative assets, and others still may not allow you to select the non-alternative investments that your hard-earned retirement dollars will invest in. With a self-directed 401(k), you may transfer, roll, and invest as you see fit as long as your plan document is written to allow alternative assets.
One key difference lies in the fact that Solo 401(k) holders are self-employed individuals with no other employees. As such, the plan holder him or herself would be the only person who would make 401(k) contributions. In the employer-sponsored model, you may defer a portion of your income to your 401(k) and your employer could make contributions as well. You would occupy both roles with a Solo 401(k) in that you would make employee and employer contributions into your one plan.
Solo 401(k) holders can also act as trustees of their accounts, giving them a degree of flexibility not available to employer-sponsored 401(k) holders. Trustees can adopt a more hands-on approach when reviewing and obtaining investments on behalf of their plans. Remember - IRS regulations surrounding prohibited transactions will apply regardless of your investment approach or abilities afforded through being a Solo 401(k) trustee.
There are no differences between Solo 401(k)s and their employer-sponsored counterparts from a tax benefit standpoint. Annual contribution limits (employee and employer) and distribution parameters are the same. However, unlike individual IRAs that have unique tax considerations, you can make traditional pre-tax contributions and post-tax Roth contributions to the same Solo 401(k) if permitted by your plan document.
Both account types allow self-employed people to make higher annual contributions, but each offers nuances that may appeal to certain business owners more than others:
When you open a self-directed Solo 401(k) with us, you have the opportunity to take advantage of higher 401(k) contribution limits while utilizing the alternative investment strategy of your choosing. At NDTCO, we can assist with your Solo 401(k) in the following ways: