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Key advantages
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- For entrepreneurs who want to use their retirement funds to finance their existing or new business tax and penalty free.
- The business owner(s) can draw a fair salary.
- SBA Loans and bank loans can also be incorporated.
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- Allows for 401k loan and investing in alternative investments such as real estate, metals and notes.
- Allows for after-tax solo 401(k) contributions as well as Roth 401k contributions.
- Investments can be made by writing a check or by wire.
- The solo 401(k) owner serves as trustee and thus makes all investment decisions.
- The solo 401k owner chooses where to hold the solo 401k funds.
- Both spouses can participate in the same solo 401(k) plan.
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- For those who do not qualify for a solo 401(k) but still want to invest in real estate.
- The LLC manager controls the funds and places investments by check or wire.
- Greatly limits IRA custodian fees and investments can be placed more quickly since the LLC manager places the investments.
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Businesses who can provide this retirement plan
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- Any business setup as a C-Corporation that offers goods or services.
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- Owner-only businesses including both spouses with no common-law employees.
- Contractors.
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- Individuals who have earned income.
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Employee eligibility and minimum coverage requirements
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- Employees can choose to participate if they’re 21, have worked one year and 1,000 hours.
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- No full-time common-law employees. Otherwise, no age or service restrictions.
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Funding responsibility
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- Once plan eligibility has been met, employee salary reduction contributions and/or employer contributions.
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- None. Business owners can contribute as employer and/or employee.
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- None. IRA holder can make contributions from W-2 income or earned income.
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Contribution options
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- Employer can decide whether or not to make profit sharing contributions from year to year.
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- Business owner can contribute as employer and/or employee.
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- IRA holder can make contributions from W-2 income or earned income.
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Employer contribution limits
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- For the 2022 tax years, up to 25% of the participant’s compensation or a maximum of $61,000, whichever is less.
- Contributions are deductible as a business expense and aren’t required every year.
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- For the 2022 tax year, overall employer plus employee contribution limit is 100% of compensation with a maximum of $61,000
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Employee contribution limits
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- $20,500 for the 2022 tax year ($27,000 for employees age 50 or older).
- Contributions are not required each year but discrimination testing may apply.
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- $20,500 for the 2022 tax year ($27,000 for employees age 50 or older).
- Contributions are not required each year.
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- For tax year 2022, $6,000 or $7,000 if age 50 or older.
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Investment choices
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- Alternative investments such as real estate, metals, notes, and tax liens to name a few. Equities such as mutual funds and stocks.
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- Alternative investments such as real estate, metals, notes, and tax liens to name a few. Equities such as mutual funds and stocks.
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Withdrawals, loans, and payments
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- Certain distribution triggering events apply (e.g., retirement, age 59 1/2, in-service of rollover funds). Federal income taxes and a possible 10% penalty if the participant is under age 59½.
- Allows for 401k participant loans.
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- Certain distribution triggering events apply (e.g., retirement, age 59 1/2, in-service of rollover funds). Federal income taxes and a possible 10% penalty if the participant is under age 59½.
- Allows for solo 401k participant loans.
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- Can’t take loans but can take distributions prior to reaching age 59 1/2, but federal taxes apply as well as a 10% early distribution penalty if under age 59 1/2.
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Employer’s responsibilities
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- Must adopt a plan that allows for investing in employer securities.
- IRS reporting required, such as Form 5500.
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- Must adopt a plan that allows for investing in alternative investments.
- IRS reporting required, such as Form 5500-EZ once plan asset value reaches $250,000.
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- Provide total value of LLC to IRA custodian for issuance of Form 5498.
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