Can I Have a Self-Directed IRA and a Solo 401k?

Self-Directed IRAs allow investors to diversify their investments with both traditional and alternative assets such as real estate, private companies, checkbook IRA/LLCs, precious metals, tax lien certificates and cryptocurrency. Furthermore, this type of account offers higher contribution limits than traditional IRAs.

However, you must work with an independent custodian or trustee in order to ensure your IRA meets IRS investment rules.

What is a Self-Directed IRA?

Self-Directed Individual Retirement Accounts (SDIRA) allow account holders to invest in alternative assets, including real estate, private equity, mortgage notes and precious metals. While this requires more time and initiative than traditional IRAs, Self-Directed IRAs allow account holders to diversify their portfolio according to personal financial goals more efficiently.

An SDIRA is an ideal option for individuals who are self-employed or running side businesses, offering higher annual contribution limits (up to $7,000 in 2024-2025), profit sharing contributions based on net self-employment income or W-2 compensation and profit-sharing contributions based on net self-employment income or W-2 compensation.

SDIRAs do not fall under the pro-rata rule, meaning they won’t get aggregated with other accounts like SEP IRAs and 401(ks). To protect themselves from potential surprises when selecting their custodian for this investment type and understand applicable tax regulations and requirements.

How do I set up a Self-Directed IRA?

To establish a Self-Directed Individual Retirement Account (SDIRA), first locate a plan sponsor/custodian with flexible investment options. Once found, make a contribution or roll over funds from an existing retirement account into your SDIRA.

Your SDIRA allows you to invest in various alternative assets, including turnkey real estate, private companies and funds, LLCs/limited partnerships, real estate notes, precious metals and cryptocurrency investments – including energy assets like mineral rights, oil & gas investments, water power or solar.

Before investing, always conduct due diligence and seek professional advice. Be wary that many alternative investments are illiquid and difficult to value, while it would also be wise to steer clear from investments promising guaranteed returns or promising high rate of returns; these types of promises could indicate fraud.

What are the differences between a Self-Directed IRA and a Solo 401k?

Self-Directed Solo 401k plans are IRS-approved qualified plans that offer many of the same advantages of large employer plans, including pre-tax savings, tax deferral/free growth and generous contribution limits. You can invest both traditional and alternative assets like real estate through this plan; additionally it may feature Roth components, participant loans and direct checkbook control without an LLC or custodian being necessary.

Self-Directed IRAs can be utilized by anyone looking to maximize their retirement savings, from small business owners, independent contractors, and self-employed individuals looking for ways to save more. With high contribution limits, employee salary deferrals and employer profit-sharing contributions allowed as well as investing in various assets without incurring unrelated business income taxes, such as leveraged real estate purchases without incurring unrelated business income (UBTI). Ongoing maintenance requirements however are more complex compared to traditional IRAs.

What are the benefits of a Self-Directed IRA?

One of the primary advantages of a Self-Directed IRA is your ability to make all investment decisions yourself, enabling you to diversify beyond traditional financial assets like stocks, bonds and mutual funds – investing in nontraditional assets like real estate mortgage notes, precious metals, cryptocurrency investments or private companies can also be profitable opportunities.

Alternative investments offer investors with more volatile markets a more predictable revenue stream. They may especially appeal to those concerned with market fluctuations.

If you are a sole proprietor or independent contractor, opening a Solo 401k plan may offer many tax benefits that could help your small business save more for retirement and avoid taxes on contributions and earnings when retiring. Please be aware that full-time employees cannot establish one.


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