What is a Self Directed 401k?

Unfortunately much confusion exists regarding what a self-directed 401k is. Reason being, the last few years companies that advertise ROBS (“a rollover as business start-up”) have decided to refer to the ROBS as a Self-Directed 401k.

ROBS Defined:

ROBS are for those who are looking to use their retirement account(s) to fund a new or existing business. The individual converts his or her existing 401k or IRA (other types of retirement accounts also qualify) through a direct rollover into capital for funding their new business (most commonly a franchise) without paying taxes or penalties.

Self-Directed 401k Defined

It is a term used to refer to Solo 401k or Self-Directed Solo 401k because as the term implies, the Solo 401k funds can be directed by the Trustee of the Solo 401k into alternative investments such as real estate, precious metals, tax liens, trust deeds, private placements, etc.

More Differences: Self-Directed 401(k) Vs ROBS 401(k)

Further, unlike ROBS transaction where one can use all of his or her retirement funds to fund a business owned by the 401k trustee (business owner), a self-directed 401k is use to passively invest in private businesses not operated by the 401k owner or his or her spouse, for example.

Compare the Self-Directed 401k vs the Solo 401k

In sum, because of the ever growing confusion regarding the use of self-directed 401k to refer to the ROBS transaction, make sure that before you proceed to open Solo 401k that you ask the Solo 401k provider which 401k plan qualifies for your particular investment.

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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