Solo 401K Questions for REI

[Alexander Timberlake]

Can someone explain the details of a solo 401k? Points I am curious about:

-Can you have a Solo 401k and a corporate 401k if you are still employeed?

-Is the Solo 401k the same thing as a self directed IRA? (except for the contribution limits... 17.5k vs 5.5k)

-What are the requirements for opening a Solo 401k?

[Justin Windham]

@Alexander Timberlake

Yes, you can have a Solo 401k (for your business or self-employment activity) AND be a participant in a 401k plan with your employer. If you do this, the employee deferral contributions will need to be aggregated. In other words, having the Solo 401k does not double your employee contribution limit. It does allow you to make an employer contribution on top of your deferral limit, however. With sufficient income, you could contribute $18k to your employers plan and $53k to the Solo 401k, for example.

The Solo 401k and the self directed IRA are 2 different structures. They do have similarities in that they can both allow you checkbook control of retirement funds and can invest into real estate.

There are many reasons the Solo 401k is the preferred structure, however.

Contributions limits are roughly 10x higher, there is no custodial requirement for the 401k, you can take participant loans, you don't need the additional expense and administration of an LLC to have checkbook control, there is a built in-Roth component, a spouse can participate, there are additional tax benefits, there is generally greater privacy, and the plans are often quicker to setup and cost less money over time especially compared to most IRA LLCs.

In order to have a Solo 401k plan, you must have legitimate self-employment activity and no full-time non-owner W2 employees.