Also known as individual(k)s or solo 401(k)s, these retirement plans provide much the same profit-sharing advantages as a typical 401(k), with less complexity and lower costs. You qualify for participation in two ways: You are a sole proprietor or you own a business with no employees other than your spouse or business partner. (Common law spouses are not eligible.) You also must have received yearly compensation.
- As an employee of your own business, you can make a salary deferral of up to $18,000 into your plan. If you are over 50 years of age, an additional “catch-up” amount of $6,000 is allowed.
- On the profit-sharing side, you may make deductible contributions (deferral + profit-sharing portion) may not exceed $53,000 (or $59,000 if you are 50 or older).
- The plan administrator can be a third party, or the business owner, spouse, or partner may play this role.
- You have the ability to borrow funds from your plan.
It is important to note that a Roth 401(k) option is available for this plan allowing the employee salary deferrals to be made after tax. However, the profit-sharing contributions must be made on a pre-tax basis.
Self-directed individual 401(k) plans are able to use many different types of alternative investments to grow retirement income. Additionally, if you wish to purchase leveraged real estate but avoid unrelated business income tax (UBIT), this is a great plan to consider.
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