Before you proceed to Open Solo 401k, make sure you understand the differences between Solo 401k and Individual 401k. There really aren't too many differences; however, some do exist. In this blog we cover the differences and similarities between Solo 401k and Individual 401k. Here's a hint on the differences: it just has to do with the Solo 401k Provider--the company where you open the owner-only 401k.
Solo 401k Vs. Individual 401k
Solo 401k
- Owner-only 401k that permits business owner to serve as trustee of the Solo 401k and, therefore, self-direct the funds into any investment that is not prohibited or disallowed.
- Trustee can invest in alternative investments such as precious metals (gold, silver) Gold Solo 401k, real estate (rentals, fixer-uppers, condos, rehabs, etc.) tax liens, trust deeds, private shares of companies, etc.
- Allows for checkbook control (Solo 401k Checkbook Control)--this means Solo 401k trustee can place investments by simply writing a check.
- Solo 401k trustee can make a loan (Solo 401k Loan)
- Trustee can invest Solo 401k in life insurance for business owner and his or her beneficiaries
Individual 401k
- Just like Solo 401k, Individual 401k is a type of self-employed 401k, but commonly offered by brokerage firms, banks and insurance companies.
- Generally only allows for investing in equities (stocks and mutual funds), bonds, and Certificates of Deposits
- Generally restricts participant loans
- Does not permit checkbook control since the provider does not permit investments in alternative investments (e.g., real estate, precious metals, tax liens, trust deeds).
- They are both approved by the IRS (IRS Solo 401k)
- They are both for the self-employed with no full-time employees
- They both allow for annual contribution amount of $50,000 for 2012 or $55,500 if the business owner is age 50 or older.
- They both require limited or no annual reporting
- They both accept incoming transfer/rollovers from IRAs with the exception of Roth IRAs.
- They both accept incoming rollovers from Thrift Savings Plans, Former Employer 401ks, 403b and 457.
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