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The solo 401k offers a variety of advantages over the self directed IRA such as:

• Higher Contribution Limits. IRA allows only $5,000 and an additional $1,000 catch up provision (age 50+) whereas the Solo 401k allows an annual contribution limit of $49,000 with an additional $5,500 catch up provision (age 50+) and the same amount for the spouse that generates compensation from the business. Therefore, together you can contribute up to $98,000 or $109,000 if you are over age 50 if you have sufficient earned income. In addition, the Solo 401k plan contains a Roth account portion which can be contributed to without income limits (in Chapter 2 we discussed the Roth IRA income limits).

• Loan Feature. You can borrow funds from your Solo 401k up to $50,000 or 50% of the balance (whichever is smaller) for any reason and pay your 401k back at a low interest rate typically prime plus 1%. The funds can be used for any purpose. You can use them for personal needs or partner with yourself to buy a property and even buy that car you always wanted.

• Total Control of Allowable Investment Choices. Since you are trustee of the Solo 401k plan, you will be able to invest in almost any type of investment that suits you as long as it is allowed. Making an investment with your Solo 401K Plan is as simple as writing a check. As trustee of the Solo 401K Plan, you will have total control over your retirement assets to make real estate and other investments without custodian consent. This helps in your ability to snatch up those great deals before anyone else.

• Reduced Fees. Making an investment in your Solo 401k is as easy as writing a check and does not require you to get permission or have funds wired or mailed from a custodian which allows you to eliminate the expenses associated with this type of activity. This also allows you to act quickly when you find a great investment and need to move fast to take advantage of the opportunity.

• UDFI Exemption. If you buy real estate in an IRA and use funds from your plan and a portion of the funds from debt financing, typically you would incur UDFI (Unrelated Debt Financed Income) which is a type of UBTI (Unrelated Business Taxable Income) on which taxes must be paid. In a Solo 401k, you are not subject to the UDFI rules and the UBTI tax (which is typically 35%).

Solo 401k plans can accept most rollovers from IRAs, other 401ks, 403b, SIMPLE, etc. The only exception is that a Roth IRA cannot be rolled into a Solo 401k plan.


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