What is a Solo 401(k)?

Before we answer the question “what is a Solo 401(k)”, let’s first discuss the structure of a standard 401(k). A 401(k) is a retirement plan (based on a section of the Internal Revenue Code) which allows an individual to dedicate income towards retirement. When the funds are designated as such, they receive special tax deferred benefits. In addition to the worker’s contribution, his/her employer may also contribute towards the retirement fund. These two contributions are known respectively as the Salary Deferral Contribution and the Profit Sharing Contribution. Most companies farm out their 401(k) plans to a third party who will typically offer the employees a choice of funds in which to invest.

So much for the standard 401(k); now to answer the question what is a Solo 401(k)? A Solo 401(k) is a 401(k) retirement plan that gives all the tax deferred benefits of a standard 401(k), but makes them available to self-employed individuals. It accomplishes this by removing a lot of the paperwork and bureaucratic procedures that accompany a standard corporate 401(k) plan. It also gives an added boost to the self-employed individual by allowing him/her to personally make both set of contributions: the Salary Deferral Contribution and the Profit Sharing Contribution. Depending upon the age of the investor, the Solo 401(k) contributions can reach between $51,000 and $56,500 per year.
 
Now that we’ve answered what is a Solo 401(k), let’s take it one step further and see how the Solo 401(k) platform can be taken to the next level. The best way to utilize the investment power of a Solo 401(k) is to enable its investment capability with Checkbook Control. In a standard Solo 401(k), (as mentioned before,) the bank or brokerage house offers the self-employed investor a choice of stocks or mutual funds. However, when the Solo 401(k) is empowered with Checkbook Control, the investor takes charge of all investment decisions. No longer is the choice limited to Wall Street products, but rather virtually any asset is available for investment purposes.
 
How does the Solo 401(k) achieve this investment power? When you call Broad to set up a self-directed Solo 401(k), Broad will provide you with an IRS-qualified retirement plan that will include a Trust as part of its structure. In setting up the plan, Broad designates you as the sole Trustee of the Trust, thereby enabling you to make all investment decisions. With this designation, you may then go the bank (whichever one you want!) and open a checking account in the name of the Trust. This checking account becomes your investment platform, and you may then invest in any asset by simply writing a check.
 
If you are self employed, or even have some minimal self employment income, then a Solo 401(k) is your best investment vehicle. And when you research the different Solo 401(k) platforms that are available, remember that Checkbook Control gives you the most investment power and freedom.
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