Self-Directed Individual 401(k) Plan

Also known as individual(k)s or solo 401(k)s, these retirement plans provide much the same profit-sharing advantages as a typical 401(k), with less complexity and lower costs.

Benefits of a Individual 401(k) Plan

High contributions with less income requirements

You can loan yourself up to $50k from the account

Roth component available

No UDFI on leveraged real estate investments

Who is eligible for an individual(k)?

To be eligible to benefit from the individual(k) plan, investors must meet only two requirements:

Self-Employed

You are self-employed and expect to both generate income from your business and make contributions to this Individual 401(k) plan. Your business must be a sole proprietorship, partnership or corporation.

No Employees

Your business does not have employees. The business owners or partners are considered “owner employees” rather than just “employees.” Certain employees are excluded from coverage: Employees under 21, Employees that work less than 1000 hours annually, union employees, non-resident alien employees.

Advantages of a individual(k) versus a SEP IRA

  • You can loan yourself up to $50,000 from an individual(k).
  • Compared to a SEP IRA, you can contribute more to an individual(k) on less income.
  • You can administer and self-trustee your individual(k).
  • With an individual(k), there’s no UDFI tax on leveraged real estate.

It is important to note that a Roth 401(k) option is available for this plan allowing the employee salary deferrals to be made after tax. However, the profit-sharing contributions must be made on a pre-tax basis.

Self-directed individual 401(k) plans are able to use many different types of alternative investments to grow retirement income. Additionally, if you wish to purchase leveraged real estate but avoid unrelated business income tax (UBIT), this is a great plan to consider.

Midland offers multiple 401(k) plans including Individual 401(k)s, Complete Control Individual 401(k)s, and Record Keeping 401(k)s.

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