Hi BP, I currently have Traditional IRA funds that are invested in stocks, but lately I have educated myself about going the self-directed IRA route. I met with a self-directed IRA custodian yesterday. However, given the advantages of a Solo 401k over a Self-Directed IRA - no need for a custodian, the ability to receive debt financing on real estate acquisitions and not pay UDFI, and the ability to make loans to myself if necessary, to name 3 - have given me pause whether the Self-Directed IRA is the way to go. I have a W2 job and then on the side, I have earned about $2,000 in a seasonal, temporary position this year (without going into details, it's money I can make while at my computer). This is my first year of self-employment history. The revenue and expenses related to this side hustle are in my own name, not an LLC. Question #1: Given the facts above, would I be eligible for a Solo 401k? Question #2: Would I be able to transfer the balance of my IRA into a Solo 401k, even though the balance in my IRA far exceeds my self-employment income? Question #3: Do I need to set up the Solo 401k in the name of an LLC? Question #4: While I mentioned before that no custodian is needed w/ a Solo 401k, can I presume too then that a manager (whoever would be the equivalent of the person who cuts checks for your SD IRA if you had checkbook control) is not needed for a Solo 401k either? Any other related feedback on these topics is welcome too. I am convinced that going the Solo 401k route over the SD IRA route is the way to go, as long as both options are on the table for me. I am meeting with a CPA who I was referred to by the self-directed IRA custodian next Friday, but rather than have these questions rattle around in my head unanswered until then, I welcome the BP's community's responses. I will still be meeting w/ said CPA regardless. Thanks.

@Gary Li To learn about the solo 401k contribution rules, see the following. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits https://www.irs.gov/retirement-plans/one-participant-401k-plans

@Gary Li you can not contribute to a Solo 401k more than your earned income.

This is really depending on how much active income you can earn. my experience is if you manage a few properties, you only have few thousands dollars as your active income, after deducting your LLC Office expenses, you do not have enough active income to contribute to the solo 401K. Also IRS will question you if you improperly convert the passive income to the active income, like manage your own properties, transfer your Expenses in Schedule E as your income on Schedule C. Harry just said "The LLC does not need to be profitable at the time it joins the plan", I don't understand what that means, if your net active income is $1000 at the year end, could you contribute $2000 to the solo 401K?

Going from Traditional IRA to Solo 401(k)?

Dmitriy Fomichenko

Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes

9y

Harry, to answer your questions:

1) If you intend to continue your self-employment then you are eligible for a Solo 401k plan.

2) You can rollover your IRA into Solo 401k, regardless of the balance. There is no limit on the rollover, the contributions however are based on your self-employment income and will be limited.

3) You don't need an LLC to establish Solo 401k plan, you can do so as a sole-proprietor.

4) With the Truly self-directed Solo 401k your role as trustee will give you the ability to have total (checkbook) control over your retirement funds.

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Will BarnardPro Member

Moderator

Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

9y

Dmitriy already answered your questions so no need to regurgitate, I will add that you still need to find a bank that will handle an account for a solo 401k. I set mine up years ago and at that time, Chase bank and some of the larger banks did not offer it, ended up at my local community bank which was able to provide what I needed. Perhaps the big banks have jumped into this now, perhaps not, Dmitriy may be able to answer that as well.

The solok plan is definitely the better option for self employed people.

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Harry Metzinger

OP

Rental Property Investor · Marlton, NJ · Member since 2014 · 125 posts · 36 votes

9y

@Dmitriy Fomichenko, thank you very much for the speedy reply and your insightfulness! I read the article you linked too...I probably read that about 2 years ago (I think we corresponded back then), but I ruled out the Solo 401k as an option at the time since I did not have any self-employment income.

If I earn self-employment income next year but the self-employment income is derived from a completely different source than the income I have earned this year, does that have any bearing on my Solo 401k account or status?

Thanks for chiming in @Will Barnard. I really appreciate your contributions to the community. Yes, I would be curious to know the answer to your question too Will. I know a local investor who owns real estate in a Solo 401k, so I'll have to ask him who he banks w/.

Crazy to think I was on the verge of spending $2,000+ between attorney fees, CPA fees, and custodian fees to launch my SD IRA...and then I stumble back upon the Solo 401k, with more advantages and little if any costs involved in setup.

Going from Traditional IRA to Solo 401(k)?

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