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Individual 401(k) Plan
There are various ways you can invest in your retirement. If you own a business, one of these options is an Individual 401(k), also known as a Solo 401(k) Plan. Unlike other small business plans, an Individual 401(k) is suited for business owners who do not have full-time employees, other than their spouse.
An Individual 401(k) allows you to invest in time-sensitive, alternative investments such as rental properties, tax liens, private mortgages, and precious metals. These investments could potentially increase the value of your account, helping you to save more for retirement.
The investment income in this type of account grows without having to be included in annual taxable income of the Individual 401(k) owner, unless the contributions and investments are held under the Roth portion of the plan.
Contributions made to the plan have the potential to provide the account owner with a tax-deduction equivalent to the amount of the contribution made into the account each year. This potential tax benefit is subject to government guidelines.
When funds are withdrawn from your account as a distribution, tax liabilities may apply. At the time of your retirement, you could find yourself in a much lower tax bracket than when you were employed. This means that you could have a lower tax liability on those funds.
TAX-DEFERRED
One of the most notable benefits to a Solo 401(k) Plan is the fact that funds are tax-deferred while in the account. That means that any money that goes into your Solo 401(k) account is also tax-deferred until withdrawn.
TAX DEDUCTIBLE
The contributions you make to your Solo 401(k) Plan may be tax deductible, provided you meet certain requirements.
TAX-FREE COMPONENT
Up to $22,500 of your elective deferrals can be Roth or after-tax contributions, Roth contributions may grow tax-free instead of tax-deferred if certain requirements are met.
PERSONAL LOAN AVAILABILITY
Solo 401(k) Plans allow for you, the account owner, to take a loan from the 401(k) up to 50% of the value of the plan, or $50,000, whichever is less.
*referring to IRC Sec 72(p)(2)(A) as a source for additional details concerning loan availability.
CATCH-UP CONTRIBUTIONS
If you are age 50 or older you can make an additional catch-up contribution of $1,000 (total contribution amount of $7,500) to your account.
NOTE: Please visit www.irs.gov for a complete breakdown of the rules and regulations concerning retirement accounts. Certain restrictions apply regarding prohibited transactions.
| 2023 | 2022 | |
|---|---|---|
| For Tax Year 2020 | ||
| Employer Contribution Limits | $66,000* | $61,000* |
| Employee Elective Deferrals | $22,500 | $20,500 |
| Employee Catch-Up Deferral | $7,500 | $6,500 |
*The employer can contribute up to 25% of your compensation up to the maximum limit. Employer contributions and employee elective deferrals in aggregate may not exceed $66,000 for 2023 ($73,500 for ages 50+), raised from $61,000 in 2022 ($67,500 for ages 50+). Compensation limits and deductibility apply. Please contact your employer for further information.
This material is provided for general educational and informational purposes only and should not be considered to be legal, tax or investment advice. Provident Trust Group, LLC is a non-discretionary, passive, directed custodian that does not sell or solicit investments and does not provide investment advice or recommendations. Provident Trust Group, LLC is not obligated to review and does not endorse any investment or investment advisor, and individuals are responsible for the investments in their accounts. Consult with a tax and/or financial advisor to determine what may be best for your individual needs.
Frequently Asked Questions
Here are a few of the most frequently asked questions when opening a self-directed account.
How do your fees differ from other custodians who handle traditional & alternative assets?
Provident Trust Group offers a flat-rate annual fee. This differs from many other alternative asset custodians who may increase your annual fee based on an increase in the number of assets you select, value of your assets, or even the purchase of a different asset class.
Most custodians of traditional assets collect fees and/or commissions based off of the amount of trades or recommendations of investment choices. For our full fee schedule, click here.
Can Provident Trust Group provide tax or legal advice regarding your investment?
No. If you should need tax or legal advice regarding your investment, you may engage a specialized tax law firm to provide the needed advice.
What types of investments are prohibited with retirement accounts?
The IRS does not state which investments are permissible in a qualified account or retirement plan, but they do state specific asset classes that are prohibited. The IRS currently prohibits Individual 401(k)s from investing in Life Insurance, Collectibles and S-Corps. Some examples of collectibles, include:
- Artwork,
- Rugs,
- Antiques,
- Metals – with exceptions for certain kinds of bullion,
- Gems,
- Stamps,
- Coins – (but there are exceptions for certain coins),
- Alcoholic beverages, and
- Certain other tangible personal property.
For more information, click here for the IRS Website.
Can my account invest with other partners, including myself?
Yes, your Individual 401(k) can invest with other partners and yourself individually. However, it is important to consult legal counsel in these situations to observe formalities and rules that may be associated with that investment.
Not Sure What Plan Is Right For You?
Take a minute or two and compare similar plans that may be the right fit for your needs.
The Provident Advantage
Our approach focuses on delivering clear and concise information so you can make well-informed decisions regarding your investments. Our clients rely on our abilities to ensure every administrative and reporting detail is covered and completed on time.
IRS Required Reporting
Record Keeping
IRA & Qualified Plan Administration
Transfer Processing
Alternative Asset Custody
Rollover Assistance
Self-Directed Education
Contribution Processing
Distribution Processing
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