Fulcrum Self-Directed: Better Options for Your Retirment Savings

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Self-Directed Roth 401K

Self-Directed Roth 401(k) ImageThe Self-Directed Roth 401(k) Plan

Many people incorrectly believe there is a special “Roth” 401(k) plan….a plan that is its own unique IRS type of plan.  A plan that is “different” from a 401(k) plan they are accustomed to.  They will call a self-directed 401(k) plan document sponsor and inquire of this “special” type of 401(k).

While there is a grain of truth in their thought process, quite simply a 401(k) is a 401(k) is a 401(k).  Let’s explain this a bit more.  A 401(k) established, administered and operated in compliance with all IRS and DOL regulations is a 401(k) in the eyes of the IRS.  Therefore, there is not a specific “Roth 401(k)”, rather…401(k) plan documents established under IRS rules that permit its plan participants to make Roth contributions.

You see, 401(k) plan documents can be written by a document sponsor to permit Roth contributions; however, 401(k) plan document sponsors are not required to include this provision.   Call some financial institutions that sponsor 401(k) plans and you will find out that their 401(k) sponsored plans may very well not include the option of Roth contributions.  For an individual who is interested in establishing a Solo 401(k) plan, you most likely would want this option included in your plan documents.  It provides you even greater flexibility with your 401(k) contribution options.

Roth Conversions

But, that’s not all….your plan documents can be written to permit Roth “conversions.”  Never heard of Roth conversions?  Roth conversions permit the participant, in most cases, to convert pre-tax funds within the plan into Roth dollars.  Generally speaking, this would permit the participant to convert rollover contributions (e.g., rollovers from other plans), pre-tax contributions, and profit share contributions into Roth funds.  Of course, the participant would be required to pay the taxes on any such conversions…but think of the wonderful opportunity you have to electively convert pre-tax funds in the plan into Roth funds for your investment goals.

After Tax Contributions

You probably are happy knowing that your 401(k) plan can make a myriad of contributions to maximize these contribution limits.  Yes, you can potentially make rollover contributions, pre-tax contributions, profit share contributions, Roth contributions…and execute Roth conversions.  But, you are not done yet.  Another source of contributions that has been receiving quite a bit of attention lately are After Tax Contributions.  While this source of contributions has been around for a long time, recent IRS rulings related to these contributions have made this perceived “new” source  of contributions a very attractive option for the 401(k) participant.  Some of these benefits can include making after- tax xcontributions to your plan regardless of the income you make, receiving tax-preferential opportunities to increase after-tax investments and rollover your after-tax contributions and gains into a Roth IRA as a r0llover.

Think these are Roth contributions…they aren’t.  Explore whether after-tax contributions are right for you!

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 $59,000

–  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

 

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About John Park

John

As co-founder of Fulcrum Self-Directed, John Park believes in the power of self-directed plans tempered by the individual responsibility to operate the plan in compliance with IRS and DOL regulations. As such, Fulcrum Self-Directed is in a unique position to assist a client in establishing an IRS compliance self-directed plan, while guiding clients with their responsibility to operate and administer their plan.

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