Self-Directed Solo(k) FAQ – Specialized IRA Albuquerque

At Specialized IRA, we understand that you may have questions regarding a Self-Directed Solo(k) retirement plan. Below, you can find some of our most frequently asked questions, and our answers to those questions.

What is a Solo(k) Plan?

  • The individual 401(k) is also referred to as a “Solo (k), Solo 401(k), and Self-Employed 401(k).” The solo(k) is a retirement plan designed for a person who is self-employed and does not have employees.
  • The plan allows you to contribute as an employee and as an employer which means you can save more than $50,000 this year in your plan and over $100,000 this year if you employ your spouse.
  • The Specialized Solo(k) also allows you the flexibility to determine the tax treatment you will receive for your contributions. You can make tax deferred(traditional) or tax free (Roth) type contributions.

Who Can Have a Solo(k) Plan?

  • The Solo (k) is for owner-only businesses or owner and spouses as long as the spouse is employed by the business and on the payroll.
  • The business can be incorporated or unincorporated and operate as a sole proprietor, C Corp, S Corp, partnership or LLC.
  • A Solo(k) can be ideal for real estate investors, real estate agents, FOREX/Futures traders, entrepreneurs, contractors, people who have a side business and many others.

What if I Have Employees?

If you have employees, the Solo(k) plan is not the plan for you. There are other terrific options for you and the best way to start the process is to call a Plan Specialist at Specialized IRA Services!

What’s the Deadline for Setting up a Solo(k) Plan?

  • If your business is unincorporated you need to establish your plan by December 31st.
  • If your business is incorporated the plan needs to be established by the last day of your tax year.

I Have Money in a Traditional IRA, Can I Move That Into My Specialized Solo(k)?

Yes! Money from a Traditional IRA can be moved into your Specialized Solo(k). This is true for all money you contributed to your traditional that was tax deductible. Any after tax contributions made to a Traditional IRA are not eligible to be moved into your Solo(k).

I Have Money in a Roth IRA, Can I Move That Into My Roth Solo(k)?

Unfortunately, no. Currently the IRS does not allow for money in a Roth IRA to move into a Roth 401(k) or Solo(k). Money can be rolled over from a Roth Solo(k) to a Roth IRA.

How Do I Borrow Money From My Specialized Solo(k) Plan?

The process is actually very simple!

  • Download and complete the loan application and submit it to Specialized IRA Services.
  • Allow 5 days to get approval on your loan.
  • Once the loan is approved we will ACH the funds to the account you designate.

How Do the Loans Work?

  • When you borrow money from your Indi(k), the money leaves your account and goes to you. It’s important to make sure you have enough cash in your account to cover the amount you plan to borrow.
  • The loan is amortized so that each month you are paying down principal in addition to the interest. The money can be borrowed from 0 to 5 years.
  • You are able to borrow up to 50% of the value of your account or $50,000, whichever is less.
  • The interest rate you pay back to your account is prime plus two.

What Is My Account Value When I Take a Loan From My Indi(k)?

  • Your account value (for record keeping purposes) will remain the same as it was before the loan. This is because the IRS does not treat a personal loan from the plan as a distribution.
  • Example: Let’s say you open an Indi(k) and rollover $100,000 in cash. You then decide to borrow $40,000. After the loan proceeds have been distributed to you, your account would reflect a cash position of $60,000 and a note for $40,000 for a total account value of $100,000.

Not Seeing the Answer You Need?

Give us a call! We’d be happy to answer any questions you may have regarding a Solo(k) plan!