Jeff Nabers: Hi I’m Jeff Nabers and I’m here with Eric Wikstrom, founder of Integrated Wealth Strategies, LLC. He’s a CPA and CFP. We’ll talk a little bit here about solo 401k. Eric, solo 401k’s tend to be a kind of new to the self directed retirement account world and there is not as much information out there as there is on IRA’s and IRS LLC’s. What do you think are the main point’s people should know in this right upfront about how solo 401k works and how it might be a little bit different?
Eric Wikstrom: Sure. Well Jeff, the solo 401k right now is a little bit stealth like for a lot of unknown reason but if you’re self employed it’s probably be preferred retirements savings vehicle primarily because the contribution limits the amounts of money you could put in every year or substantially higher than what you can put into an IRA. There is a nice raw feature which is not eliminated by the income like you are in an IRA. As the borrowing capacity like most people who have the 401k and an employer probably realize you can borrow from the 401k as long as the plan allows it or you can do that with your own solo or individual 401k so it’s got some great benefits over an IRA that people should really realize, if your self employed this is the retirement plan you really need to consider.
Jeff Nabers: Okay. And so everybody that is self employee, more specifically, how a person go on eligible or a not eligible.
Eric Wikstrom: So if you’ve got an existing company with full time authorities unfortunately you wouldn’t qualify for the solo 401k, you got to have a more traditional 401k, which in essence is the same thing, but it just has more administration to it than the solo 401k.
Jeff Nabers: So to be eligible, you have to have a business and a business can not have full time employees.
Eric Wikstrom: Correct.
Jeff Nabers: And there’s pretty cut and dry.
Eric Wikstrom: Correct. And one of the things that people really don’t understand very well is you can be a full time W2 employee during the day, work Monday through Friday nine to five and in the evening you can be computer software designer. You can be a musician on the weekends. As long as you have an activity that has an intense to make a profit that could be obviously that could be your self-employed business activity in addition to your W2 job during the week. So a lot of people are W2 employees, full time employees but also have self employed activities basically on the side and they are eligible to take some earnings and put it in that form or key plan from the profits and earnings they made from the self employed activity.
Jeff Nabers: Got you. So you run into a lot of people who work a day job 9-5 and maybe have decide business, it is some consulting or some for the contracts work and the message you have for them is, “hey you’re still are eligible for the solo 401k as you don’t hire employees with your side work.
Eric Wikstrom: Right. Real quick example, a gentlemen I worked with which would be again sof5tware company in my neighborhood by day but in evening, he’s developed a side online where he buys used, basically used text books online. And he resells them so his trade or business is basically buy and selling text books and reselling them to individual and he buys very rare books and he’s quite successful at it so that is a separate trade or business for him.
The buying and reselling of books so he has got his W2 day job which he also contributes to that 401k plan now the limits. He can’t over contribute; in total, we’re all limited by an annual amount, which this year is 15,500 but he can contribute to his employers plan and also contribute to his solo 401k plan as long a you guys did not exceed to that amount. But he’s going to be able to have two plans and contributed at two different places.
Jeff Nabers: And so there is obviously a lot of unique benefits that a solo 401k will enjoy than a self directed IRA. We’ll not enjoy, you’ve mentioned a couple of a, have you ever run into anything that you think is undesirable about a solo 401k that you can’t do something or the same things are certain way and it’s better with a self directed IRA.
Eric Wikstrom: No, actually, the self directed IRA is a phenomenal retirement savings vehicle for most people and it’s great for the folks that don’t have that trade or business opportunity but someone does have a trade or a business opportunity and they don’t mind setting that up and transferring assets from their self directed IRA into their new solo 401k. I just think that benefits of the solo 401k provides so much more flexibility but that’s something they really should consider and I know we talked about this a lot we.
Get together but if you don’t have this little under rated business income tax on leverage US state, and so for those of you who are interested in buying real estate and put it dead on it, you don’t have to potentially attach if you do this in a solo 401k like you might have in an IRA. So if you’re ready to go through a checklist of items on benefits, you have to keep see more benefits in the solo 401k than you would in the IRA.
Jeff Nabers: So you would agree that it’s pretty safe to say as a general thumb if you’re eligible for solo 401k and you’re expect to remain eligible for a solo 401k always go with the solo 401k over the IRA.
Eric Wikstrom: I would and the benefits are greater. We’ve talked about before the concept of check book control and the solo 401k, you can still have check book control, global control with investments you see you’re making but have the ability to control how the funds are disbursed then there is a lot of issues about being disciplined to that right but yeah all things being equal. I’d rather recommended people if they can qualify, if they have a trade or business activity but they are really focus on solo 401k. Again on higher contribution limits, you can have you spouse involved, no limits on a rough as far as your income plan loan all kinds of wonderful things that you don’t have access to in a self directed IRA.
Jeff Nabers: And with your experience in your clientele, what are some of the popular investment choices, once you have all the restrictions removed, what are some of you clients tend to be investing in.
Eric Wikstrom: Well one of the bigger barriers that people obviously gravitate towards is real estate and there are all kind of ways to own real estate and to benefit from price increases in real estate and you could actually go own a single family rental home, you can own a interest in a larger infra real estate investment. Maybe that’s someone else’s put together, locally maybe in your neighborhood. A lot of people also they don’t want to be involved with tennis and toilets purchase one of these known as trust deeds.
So they get involved to the situation where someone has loan money to someone who needs money, maybe developer or a homeowner and they take a secure position in that real estate but the interest rates are those types of trustees or you know. 10%, 12%, 14% and as long as you r properly secured in that investment, I think it makes a great alternative to whether your IRA assets so it’s primarily a real estate, trustees receive people writing options on property. So those are probably the top three investments there is anything other than collectibles or life insurance is fair gained for an IRA so if you just use your imagination, you know you can imagine some of the great things out there but I’d say real estate, trust deeds and perhaps options of the top three.
Jeff Nabers: Okay.
Transcription by:
Scribe4you Transcription Services