Self-directed 401k for a teacher client

QUESTION 1: I have a teacher client. She is self-employed with her real estate business and she is a w-2 wage earner as a teacher, both part-time. Can she open a self-directed 401K?

ANSWER:  The rules permit contributions to multiple retirement plans including a 403b and a self-directed 401k.Yes she can open a self-directed 401k for investing in alternative investments such as real estate and private placements if (1) she is also self-employed through the real estate business and (2) real estate business generates earned income instead of passive income as only earned income qualifies.

QUESTION 2: I am assuming contributions to the account would be limited to % of money earned from self-employed business??? What if the accounts she wants to transfer were from companies that she used to work for as a w-2 wage earner. Please help us shed light on the subject so we can move forward.   

 ANSWER: Correct that in addition to only basing her annual self-directed 401k contributions on earned income generated from the self-employed business, she can also transfer her former employer plan funds to the new self-directed 401k.  On another note, the only type of funds that may not be transferred to a self-directed 401k are Roth IRA funds which is a Roth IRA restriction not a 401k restriction.

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>


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