The Self-Directed 401(k) Plan
You are self-employed and have no employees. You want a retirement plan that provides you utmost freedom and flexibility. You understand that you have to comply with IRS and DOL regulations, but you want to invest into more than just stocks, bonds and mutual funds.
You can!
Maintain an IRS-compliant 401(k) plan that provides you this freedom and flexibility! Invest in real estate, precious metals, hard money loans, while maintaining exclusive checkbook control of your plan as the Trustee. Invest as you see fit!
With the Fulcrum Self-Directed 401(k) plan, you can achieve all of this! And, since it is a qualified 401(k) plan, you still enjoy the following benefits:
– Contribution Limits up to potentially $57,500
– Borrow up to $50,000 from the plan for any purpose you see fit
– Have exclusive and full “checkbook control” of your plan’s assets as owner of your self-employed business and Trustee of your self-directed 401(k) plan
– Invest in any asset not specifically excluded by IRS and DOL regulations
– Secure investment returns in either a tax-deferred or tax-free basis
– Low Administrative Costs
– Potentially, little to no annual reporting requirements
A Self-Directed 401(k) plan is an ideal retirement plan for the self-employed (with no employees). Whether you are a sole-proprietor, independent contractor or consultant, you now have the ability to have a qualified 401(k) plan that provides you such significant benefits, but also the freedom and flexibility to control the plan and its investments. Further, establish your Self-Directed 401(k) plan with no custodian or Third Party Administrator (TPA)! And, fund your new plan with rollovers from other plans, but also with pre-tax or Roth contributions from your self-employment activities.
Self-Directed 401(k) Plans — This Ain’t Your Father’s 401(k)!
While 401(k) plans have been in existence for nearly 40 years, it wasn’t until recently that the self-employed was allowed to fully participate in the unique benefits associated with this plan. Historically, the self-employed were limited to the IRA-family of products (e.g., Traditional IRA, SEP, SIMPLE) as their only options for retirement funding and planning. With the option of establishing a self-directed 401(k) plan, now the self-employed individual has the same expansive benefits of 401(k) plans BUT with the ability to self-direct your investments. It is your business and your retirement plan, so why shouldn’t you be allowed to do what the IRS and DOL permit you to do? Now you can enjoy the following benefits:
1) Freedom of Investments – Want to invest in any asset not prohibited by IRS and DOL regulations…now you can! The power of investing into non-traditional assets and not just being limited to investing into traditional assets that your broker recommends. You can invest in more than what Wall Street is offering you!
2) Diversification – You have it with the Fulcrum Self-Directed 401(k)! Why be limited to diversification within the world of stocks, bonds and mutual funds? Doesn’t your definition of true diversification surpass mutual funds? Don’t you think that you should have a menu of investment choices that is not limited? You can!
3) Control – You are the 401(k) Trustee, not some other individual or company. You can dictate the operation of your plan and the investments you have to choose from.
4) Protection – your retirement plan again market fluctuation and volatility. Why rely solely on your broker to protect your retirement funds from such volatility?
5) Investing with others? – You can! While one must follow all IRS Prohibited Transactions, you now have the ability to potentially invest with certain family members, friends, business associates and strangers.
6) Rollovers and Transfers – Did you know that, general speaking, you can rollover or transfer practically any other retirement plan funds into your new 401(k)?! You can! One notable exception is the impermissibility to rollover Roth IRA funds. However, the ability to rollover or transfer practically any other retirement plan funds into your 401(k) gives you immediate funding for your plan and the investment activities of the plan.
7) Contributions – Not only can you make a high level of contributions (up to potentially $57,500), you can make contributions in both a pre-tax (traditional) or after-tax (Roth) manner….or even a combination of the two. Being the self-employed participant of your Solo-K plan, you can decide the tax-favored manner in which you make your contributions.
8) Plan Loans – Have the freedom and flexibility to take participant loans from the plan. Sure, there are IRS rules (think of duration, interest rate, etc.) to be followed, but YOU have the freedom to make that choice. Borrow up to $50,000 or 50% of the account balance (whichever is less) for any purpose you desire.
9) No Custodian Fees — As you may already know, a self-directed IRA will have custodian fees associated with the IRA LLC. With you self-directed 401(k) plan, you will avoid a custodian fee.
10) Other Plan Benefits – There are many. 401(k) plan benefits were intended for to provide extensive benefits to an employer sponsored plan. With the individual, self-directed 401(k) plan, you have a tremendous amount of benefits, including asset protection.
Complete, Set-Up, Rollover/Contribute & Write Checks!
The process for establishing a self-directed 401(k) plan is not necessarily THIS easy. Even if it was, there are specific IRS and DOL regulations that must be strictly adhered to in administering your plan. Notice that it is YOUR plan. This type of plan gives you the ability to make contributions up to $57,500, to exercise participant loans of up to $50,000 for any purpose you desire. The plan will permit you to rollover over other plan funds, make pre and/or after-tax (Roth) contributions, and invest in any permitted asset, such as real estate.
This flowchart provides a brief overview of the establishment, funding and investment cycles associated with the self-directed 401(k) plan. But, the “life” of the plan includes so much more. The plan must be established correctly and updated, amended and re-stated as need be. In most cases, at some point in time it will need to be terminated. And, between establishment and termination, there is operation. These will be important responsibilities of the plan and its Trustee. But, think of all the benefits this plan provides you:
– Establish a plan that permits the Trustee (you) to have ultimate control of your retirement plan investments;
– Make investments in any asset class not prohibited. Don’t feel handcuffed to only invest in what your broker suggests;
– Don’t want permission from anyone to invest…you don’t need permission;
– Truly diversity your investment activities. Don’t be limited to just diversifying within Wall Street;
– Invest as quickly as you want. Want your plan to purchase real estate…just write the check;
– Secure investment returns on either a tax-free or tax-deferred basis;
– Be able to make the highest level of contributions you qualify for;
– Contribute in either (or both) a pre-tax or after-tax (Roth) manner;
– Take 401(k) participant loans….you can as long as you follow the rules!
Self-Directed 401(k) Benefits – Obviously, the most significant benefit associated with a self-directed 401(k) is the ability to invest in a wide-array of assets, both traditional and non-traditional. You have the freedom and flexibility to invest as you see fit, invest in assets that you believe are in your best interests and invest in assets that you have the highest comfort level with your investment strategies.
1) Think of the power of investing into non-traditional assets that are not offered by financial services companies. No more limitations on investing only into Wall Street products.
2) Most financial planners will emphasize the diversification of retirement assets based on several factors. However, shouldn’t one consider diversification in assets outside the offerings of only Wall Street products?
3) The ability to invest in assets that you, the 401(k) Trustee, have the highest comfort level with. You may have experience with real estate investments, rather than stocks, bonds and mutual funds. You now have the ability to invest as you see fit.
4) Invest to protect your retirement plan again market fluctuation and volatility.
5) Interested in investing with others? You can! While one must follow all IRS Prohibited Transactions, you now have the ability to potentially invest with certain family members, friends, business associates and strangers.
6) Depending on your interests and options, you can have your investments grow on either a traditional, pre-tax basis or in an after-tax, Roth manner.
Bottom line is that as 401(k) Trustee, you have the freedom and flexibility to invest as you see fit. No more being limited by the financial products offered by financial service companies. No more being limited to the standard offerings of stocks, bonds and mutual funds. Invest as you see fit. In establishing your self-directed 401(k) through Fulcrum Self-Directed, you now have the flexibility to invest in any asset class that is not prohibited under IRS regulations. No more being handcuffed with the limited options provided by financial service companies.
IRS/DOL Regulations
While there are significant benefits associated with your self-administered 401(k), there are various IRS and DOL rules and regulations that must be strictly adhered to. While investing in assets that you wish to invest into, there is increased liability you face related to very strict IRS and DOL rules governing 401(k) plans.
Should these rules discourage you from self-directing your 401(k) plan….no. However, as the 401(k) Trustee, you must assume the responsibility of operating your plan in full compliance with all IRS and DOL regulations. Not only must you assume due diligence in reviewing investment options for the benefit of your 401(k), you must also ensure that the investment complies with tax law.
Fulcrum Self Directed believes that all 401(k) Trustees must review all transactions and record-keeping responsibilities of the 401(k) with a professional tax or legal professional. While Fulcrum Self-Directed believes that a client should consult with their local professional, Fulcrum Self-Directed is able to refer clients to such professionals as requested, and needed. We strive to educate our clients on the rules governing these accounts and how it may impact their investment strategies. It is of vital importance that the 401(k) Trustee take this responsibility seriously when establishing their self-directed 401(k).
While not intended to replace your tax or legal professional, learn more about IRS/DOL Regulations.