Learn about the new Roth rules for 2023 and beyond, contributing 10 times more annually than an IRA, the necessity of an LLC for a Solo 401(k), qualification criteria, avoiding common mistakes, and the increased contribution limits for 2023 ($66k) and 2024.
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Quick takeaways
The solo 401(k) allows self-employed individuals to contribute significantly more money compared to traditional IRAs.
Understanding the qualification criteria for a solo 401(k) is crucial, including limitations for individuals with rental properties and potential workarounds.
Proper recordkeeping, understanding required minimum distributions (RMDs), and filing necessary tax forms are essential for managing a solo 401(k).
Deep dives
Solo 401k is a powerful retirement account for self-employed individuals
The podcast episode discusses the benefits and features of a solo 401k, highlighting it as the number one retirement account for self-employed individuals. It allows self-employed individuals to contribute significantly more money compared to traditional IRAs. The episode emphasizes the importance of understanding who qualifies for a solo 401k, how to set it up correctly, and the potential for both traditional and Roth contributions.
Qualifications and considerations for the solo 401k
The podcast addresses various aspects of the solo 401k qualification process. It clarifies that individuals must be self-employed and cannot have any other employees except for a spouse or certain family members. The episode explains the limitations for individuals with rental properties as rental income does not qualify as self-employment income. However, it also suggests potential workarounds like establishing a management company. The episode also provides insights on employing business partners and the spouse exception for separate businesses.
Contribution rules, checkbook control, and other considerations
The episode delves into the contribution rules for a solo 401k, discussing employee contributions and employer contributions based on a percentage of income. It highlights the increased contribution limits for 2023 and beyond, explaining the flexibility to allocate contributions between traditional and Roth options. The episode also explains the options for achieving checkbook control without necessarily needing an LLC and emphasizes the importance of proper recordkeeping, understanding required minimum distributions (RMDs), and filing the necessary tax forms like the 5500EZ.
Key Point 1: Differences between Solo 401k and Self-directed IRA
The podcast episode discusses the key differences between Solo 401k and self-directed IRAs. The main distinction is that a Solo 401k is for self-employed individuals with no employees, while a self-directed IRA is for individual investors. Additionally, Solo 401ks allow for higher contribution limits compared to IRAs. Another difference is that IRAs require a custodian, whereas business owners can act as trustees and plan administrators for their Solo 401ks.
Key Point 2: UBIT and UDFI in Self-directed Retirement Accounts
The second main point of the podcast covers two important tax topics related to self-directed retirement accounts: Unrelated Business Income Tax (UBIT) and Unrelated Debt Financed Income (UDFI). UBIT applies to both 401ks and IRAs and is triggered when investment income is generated from a business activity within the retirement account. On the other hand, UDFI comes into play when retirement account funds are used to purchase an asset and outside debt is involved. UDFI may result in taxable income within the retirement account. The episode emphasizes the need to consult with tax professionals to understand these tax implications fully.
In this webinar, Mat Sorensen, CEO, and Aaron Halderman, COO of Directed IRA discuss everything you need to know about Solo 401(k)s
We cover the following topics:
-New Roth Rules for 2023 and Beyond -Contributing 10 times more annually than an IRA -Understanding the necessity of an LLC for a Solo 401(k) -Qualification criteria -Avoiding common mistakes -Exploring the increased contribution limits for 2023 ($66k) and 2024
