This presentation will briefly cover the topic of this solo 401k offered by neighbors group. A couple of brief items upfront here is the following information is not a tax legal or an investment advice.
Now, what we will be covering is what is the solo 401k? Who is eligible? What can a solo 401k invest in? How was solo 401k different than an IRA? And I am your presenter Jeff Nabers. I used to be the owner of a mortgage company and a real estate holding company that’s from my background is. I started learning about and using self-directed IRA concepts in 2003. I went through about an 18-month period of time of what really turned out to be full time research in development during that period of time if you would have run in to me, I would have told you I was about two weeks away from figuring it all out. I founded the IRA Association of America in 2004 and I launched Neighbors of Groupist in 2005. My company pioneered the self-directed, self-administered, self-trustees, solo 401k in 2007.
Now, what is what is the solo 401k? On 1974, an act called—was created that, introduced the defined contribution retirement account which created the IRA in 1981, the 401k was created. And historically, 401ks have substantial administration cost. The solo 401K was created out of a law called EGTRRA in 2001 and identified that a 401k can be used for self employed people who don’t employ others. It clarified reduced administrative requirements so there is no non-discriminatory testing for a solo 401k because you were the only person participating it or you and your spouse and so there is really no need to find out if you’re discriminated against yourself.
It also clarified that you can have large contributions by contributing in the role of employee and employer. Eligibility for a solo 401k has a couple of requirements. First of, you have to have self-employment activity so this includes business owners, independent contractors. The other requirement is that you cannot employ others. So, if you look at the first requirement what is self-employment activity? Well, this can be a new or existing business such as sole-proprietorship limited liability company, C Corporation or S Corporation or limited partnership. What is self employment activity? You basically to be eligible for the solo 401k must intend to generate revenue for profit and make contributions to the 401k plan from the revenue. Significant is a matter of common sense, if you set up a fake business and never do any business regenerating your revenue, never sell or make a product or service then you obviously don’t really have a business and have a real intention to generate profit in contributions.
At the same time there is no threshold of a minimum contribution that you have to make or a minimum frequency of making contributions or anything like that. Now, this self employment activity can be part time. It can be on the side in addition to full time employment elsewhere and you can even participate in both your own solo 401k plan with your self-employment activity and the 401k plan add another employer. You can’t have employees and this means a person who works at least of thousand hours per year and receives the W-2. You can however have part time employees under a thousand hours per year of work and independent contractors.
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