Thursday, September 15, 2011

Basic Trust Document Requirements and Advantages: Self Employed 401k | Solo 401k | Self Directed 401k

Self Employed 401k plans, like other types of qualified plans, must meet the basic qualification requirements for retirement plans as outlined in Code Section 401(a).
Advantages afforded to a Solo 401k plan that is qualified
The many advantages of having a qualified Self Directed 401k plan or Solo 401k include the following:
1. The employer can take a tax deduction for making contributions to the self employed 401k plan.
2. Investment earnings of the Solo 401k plan's assets are not subject to current taxation.
3. As a Participant or Trustee of the plan, you can avoid current taxation of amounts allocated to the self directed 401k.
4. As a Participant/Trustee of the plan, you may roll over plan benefits from or to other employer-sponsored plans or IRAs  tax-free.
The Solo 401k plan must be in writing
Some states recognize the existence of an oral trust; however, a Solo 401k or self employed 401k plan will not be considered qualified unless it is established and operated in accordance with a definite written program. This is outlined in the following regulation- [Treas. Reg. 1.401-19(a) (2)]. The Solo 401k written document must include all provisions essential for qualification as outlined in [Rev. Rul. 74-466, 1974-2 C.B. 131]. The Solo 401k Plan document serves to define the rights and obligations of the plan sponsor, Participant/Trustee, and beneficiaries. It also must be reviewed by the IRS, which it then issues a determination letter confirming that the plan is tax-qualified.

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