When likening Solo 401k vs Self Directed IRA it turn out to be obvious that Self Directed Solo 401k is more advantageous. Let’s take a gaze why.
Solo 401k Loan Piece
You are not permitted to barrow even a penny from Self Directed IRA. If you take any money from your IRA, it will be deemed a taxable distribution, thus you will be taxes (and penalized if you take the funds prior to age 59 ½). However, with Individual 401k business owner can borrow from his Solo 401k Plan. This feature is known as a Solo 401k Participant Loan without having to pay distribution taxes or penalties. The maximum Solo 401k Loan amount is 50% percent of the account holder’s balance or $50,000, either is less.
With Solo 401k you can make much greater contributions
With Self Directed Traditional or Roth IRA full contribution limit is $5,500 and if you are over age 50 you are permitted to contribute extra $1,000 (called catch-up contribution). Solo 401k gives you the capability to contribute up to $51,000 plus $5,500 catch up contribution if you are over age 50 or older for a total of $56,500! This is nearly 10 times more equated to an IRA!
Roth Solo 401k
With self-directed Roth IRA (for 2013) your maximum contribution limit is $5,500 ($6,500 if you are over 50 year of age). With Roth Solo 401k sub-account you can contribute $17,500 per year plus additional $5,500 catch-up contribution if you are over age 50 for a total of $23,000!
Solo 401k is except from UBIT
Self Directed IRA matters to payment of UBIT (distinct business income tax) when it consumes debt financing to invest in real estate, a Solo 401k is not subject to payment of UBIT when it uses a non-recourse loan to invest in real estate.
Custodian is not required
The rules allow the business owner to be the Trustee of his Solo 401k assets, this means you don’t have hire a custodian to hold your assets. The benefits of this are: (1) processing time is considerably reduced because you don’t have to submit investment processing directions to the custodian and (2) processing and holding fees are completely removed.
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