A lot of people are misguided when it comes to where they should put their retirement money, and what they should do with it. Keen investors can tell you that the IRS has always allowed any form of real estate to be held within a Solo 401k retirement account. The only time this is not allowed, is if the transaction involves a disqualified person or if it is considered a prohibited transaction.
There are different types of real estate investments; apartments, mortgage notes, commercial property, mobile homes and condos.
Advantages of Solo 401K for Self Employed
Solo 401k offers tax-deferred benefits, which means you can contribute pre-tax amounts. This way, you don’t have to pay tax until years later and put the full amount into investment to grow. Another benefit of 401k for self employed individuals is that it allows a Roth sub-account. With this option, you can choose to pay tax upfront and never have to worry about tax on that contribution or the gains from it later on. This also means that all incomes from investing the after tax amount will be tax free.
Steps to Invest for 401K for Self Employed Individuals
In order to take advantage of the tax benefits of this retirement plan, there are only a few steps to take:
- You will need to set up a self directed solo 401K plan.
- You will need to select a property or investment option such as trust deed or notes and investigate its risk and earning potentials.
- You can then go ahead and purchase any investment property of your choice using the solo 401K plan. The title and any documents pertaining to the transaction, should state the solo 401K as the owner.
- Documents associated with the transaction should be signed in your name, as a trustee.
- All gains, interest, or rental payment will be deposited directly into your 401K for self employed. From there you can continue to invest on a tax-free or tax-deferred basis.
Once a self directed Solo 401k account is set up, plan holders will realize that investing their retirement accounts in real estate is not only possible, but also fairly simple to do. Unlike stock and bonds, most real estate investments such as rental homes require little management and will provide a steady passive income. For accounts with checkbook control, investing can also be done as easily as writing a check. This gives investors the freedom they need to safely grow their retirement nest.