Can I Have a Self-Directed IRA and a Solo 401k?
Typically speaking, solo 401(k) plans are best for individuals who own their own businesses while self-directed IRAs (SDIRAs) may be better suited to all those interested in investing non-traditional investments such as real estate, private equity and precious metals.
SDIRAs allow account holders greater investment freedom compared to traditional IRA accounts by giving them checkbook control of their retirement funds and investing in alternative assets such as real estate, mortgage promissory notes and tax liens.
What is a Self-Directed IRA?
Self-directed IRAs (SDIRAs) allow investors to invest in assets that go beyond traditional investments such as real estate, loans and notes, private companies, precious metals, tax liens and much more – giving you greater investment freedom and providing more diversification in your portfolio.
SDIRAs differ from solo 401(k) plans by not necessitating you owning your own business to open one; you can even open one if you work for an employer that issues W-2 paychecks.
Solo 401(k) and SDIRA have complex IRS regulations to abide by, so before investing you must conduct thorough research to understand all of their rules. This includes taking note of prohibited transactions and dealings with disqualified individuals as these may incur extra taxes, financial penalties and loss of tax-deferred status; to be safe consult a qualified tax advisor so as to remain compliant with law.
What is a Solo 401k?
A Solo 401k is an individual retirement account designed specifically for self-employed people and small business owners. It provides many of the same advantages found in larger employer-sponsored plans, including tax-deductible contributions and deferred or tax-free growth. Furthermore, unlike SEP IRA and Savings Incentive Match Plan for Employees (SIMPLE) IRA options available to self-employed workers (such as maximum contributions of $69,000 in 2024), and the flexibility to select any investment firm you desire, unlike its competition such as SEP IRA/ SIMPLE/SIMPLE options offered through SEP/SIMPLE/SIMPLE options or SEP/SIMPLE/SIMPLE options).
Carry offers some of the lowest fees and highest contribution limits available from fully self-directed retirement accounts, giving you access to turnkey real estate investments, private equity funds, cryptocurrency trading platforms, precious metals and precious metal ETFs. Furthermore, opening an entire Solo 401k takes minutes with direct investing available directly from your account with one click – unlike other providers we handle all aspects of onboarding for you – simply choose your investments and stay compliant with filing requirements annually.
Can I Have Both?
It is generally not possible to hold both a Self-Directed IRA and Solo 401k accounts simultaneously; however, you may transfer funds from an employer-sponsored retirement account into your Self-Directed IRA so long as these funds don’t come from a SIMPLE IRA.
As long as you meet the eligibility requirements, it’s possible to open both a traditional IRA and Solo 401k accounts simultaneously. For instance, to qualify for each, such as self-employment with no full-time employees other than yourself and your spouse.
However, contributions should be prioritized towards a Solo 401k over an IRA due to its higher contribution limits, Roth and Backdoor Roth contributions, ability to hold alternative investments such as real estate, private companies/private equity funds LLCs notes precious metals cryptocurrencies plus no custodian fees associated with an IRA and being eligible for loans against it from IRA Financial Group. As always it’s best to seek guidance from an expert before setting up either type of plan as to make sure you meet all IRS rules and regulations.
How Can I Convert My Solo 401k to a Self-Directed IRA?
A common method to convert an existing Solo 401k to a self-directed IRA is rolling over funds into an LLC, as this provides immediate checkbook control while still permitting investment in all asset classes that are allowed by the IRS, such as real estate, private equity, promissory notes or even cryptocurrency investments.
To avoid any prohibited transactions, it’s wise to select an IRA custodian who supports self-directed investments online and is easily accessible. This will ensure your account complies with laws while mitigating tax penalties associated with rollovers.
Once your LLC has been created, you can then transfer either directly or in-kind your 401k assets into it and close down your current plan. This process does not create any taxable events as long as all steps are followed correctly and records kept regarding this transaction so all tax reporting remains accurate.
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