In real estate, it is common to work independently, either as an independent agent or contractor, or in a single member LLC or partnership. The independence allows much flexibility and control to real estate professionals, allow them to grow and thrive in their best environment.
This does come with some drawbacks, however. The lack of a traditional office also comes with the lack of many traditional corporate benefits, such as a qualified retirement plan. For this group, the Solo 401k presents a great solution to meet their retirement planning needs. This retirement plan offers many relevant advantages, making it the one of the best retirement plans for self employed real estate investors.
Solo 401k is designed for individuals
The eligibility requirements make it clear that this retirement plan is designed solely for individuals and perhaps their spouses. This fits with the independence of real estate agents and investors, who don’t want a complicated plan that covers more than one participant.
Because of the individual mindset, the plan is also much more cost-effective and simple to manage. The plan required no discrimination testing, as there is no one else to discriminate against! It also does not require any annual filing unless the total plan asset exceeds $250,000. Even in this case, there is only one single form (5500-EZ) to fill out.
Solo 401k is allowed to invest in real estate
Unlike traditional plans where all your retirement savings have to be invested in some funds, the Solo 401k allows alternative investment options. This means that real estate investors no longer have to gambles their savings in the stock market that they know little about. Instead, they can utilize their expertise to grow the retirement fund in real estate, from properties to mortgage notes, from flipping houses to owning rental units.
Not only that, for large property purchases, real estate investors can even use non-recourse financing to help fund the purchase. Traditionally, even when real estate investment is allowed for retirement plans, in the case of self-directed IRA for example, the use of financing will lead to an Unrelated Business Income Tax charge. This tax does not apply to the Solo 401k plan though. Therefore, investors can leverage their investments without any tax or penalty. This is an important advantage that makes Solo 401k one of the best retirement plans for self employed real estate investors.
Solo 401k offers flexibility with Checkbook Control
A self-directed Solo 401k often comes with Checkbook Control. This is a powerful feature for real estate investor. This gives them direct control to the fund in their Solo 401k plan. Transactions can be made as easily as writing a check or making a wire transfer. For real estate investors, this gives them the liberty to catch any deal before it falls through.
Besides, the Solo 401k plan offers more flexibility in the forms of high contribution limit and loan option. Account holders can contribute as much as $59,000 in 2015, or suspend their contribution altogether if it has been a difficult year. In case of urgent cash need, plan holders can even rely on the loan option to borrow up to $50,000 or 50% of the account value without any tax or penalty.