The Most Elusive & Dangerous Self-Directed Solo 401k Practice – Part 2

[Originally Published at JeffNabers.com]

In the last post, you learned about how doing an active “entrepreneurship-ish” deal inside your Solo 401(k) is an open invitation for the IRS to tax the hell out of you.

In this post, you’ll learn the solution.

  • The solution is not to avoid doing active deals.
  • The solution is not to stop pursuing massive profits or to lock away your talents and skill to be unused.

The solution is to structure both your active entrepreneurship and your passive investment activity in a way that that puts you in the most control. Put another way, avoid giving the IRS an open invitation to tax attack you.

I bet you can guess where this is going (one commenter had a pretty good [Read more...]

How to borrow money from your Solo 401(k)

Solo 401(k)’s most touted feature is its uniquely large annual contribution limits ($49k – $108k). A lesser known feature may be just as useful for some: participant loans.

What is a participant loan?

A Solo 401(k) participant can borrow up to either $50,000 or 50% of their account value with the following terms:

  • To be repaid over an amortization schedule of 5 years or less
  • Regular payments no less frequently than quarterly
  • At a reasonable rate of interest… generally interpreted as prime rate + 1%

Such a loan may only be made in accordance with the Solo 401(k) plan documents. While most plan documents disallow this type of loan, the Unlimited® 401k offered by my company does allow it.

Under what conditions is this allowed?

Any. As long as the plan documents allow for it & the proper loan documents are prepared and executed, a participant loan can be made for any reason.

When is this useful?

This can be useful when [Read more...]