Become the Trustee of Your Individual 401 k

Individual 401 k

Individual 401 k

With a traditional 401k, account holders often have their retirement fund managed by a custodian service company. With an Individual 401 k, however, account holders can choose to act as the trustee of their own plan. Let’s take a look at how becoming a trustee can benefit account holders.

Lower cost and fees

As with any other service, a trustee will charge a fee for the time and effort they spend on managing the fund. When account holders spend their own time making decisions regarding the fund, there will be no cost associated with that.

Personalized portfolio

As the trustee of their own Individual 401 k, account holders are able to hand pick different assets they want to invest in, and not limited to only stocks and bonds. A trust company or a bank would more likely to restrict investment options to products they offer, or prioritize their products. Account holders, on the other hand, only have their own interest at stake and will be able to consider the best options to fit their investment goals.

Time-sensitive Investments

Since the trustee is the manager of retirement plans, account holders are required to get approval from a trustee before making any changes to their investment. When the account holder is also the trustee of the fund, this approval process is eliminated. Thanks to that, it simplified the process. For certain assets, quick decisions also mean account holders will be able to catch better deals, which they would have to miss otherwise.

How to become the trustee of your individual 401 k

These three reasons above make self-directed individual 401k an attractive self-employed retirement plan. By taking charge of their plans, experienced investors can grow their fund and reach their retirement goals much faster than having it taken care by someone else.

Keep in mind that not all individual 401k plans allow account holders to act as the trustee. Often, banks, trust companies, or other financial institutions will offer individual 401k plans that require custodian services. In order to become a trustee of your individual 401 k, you will need to make sure your retirement plan is truly self-directed.

Also, once you act as the trustee of the retirement plan, it is your responsibility to make sure the plan and its investment are in full compliance with IRS regulations and applicable laws. This requires research on your own, or make sure your plan provider offers services and supports you needed.


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Self Employed 401 k Plan: Is Checkbook IRA a Wise Addition to Your Retirement Portfolio?

Self employed 401 k plan: Self-directed IRA

Self employed 401 k plan: Self-directed IRA

“As in all successful ventures, the foundation of a good retirement is planning.
– Earl Nightingale

Every small business owner and entrepreneur is aware of the importance of planning in his or her professional lives. Planning gives them confidence and ensures that they have the financial strength to endure any risks. What happens when it comes to retirement planning? Self-employed professionals often ignore retirement planning despite of the fact that they have to retire at some stage of life.

If you are self-employed and would like to start saving for your retirement, then this is the right time to start. Market is full of retirement options and you can choose a self employed 401 k plan for your retirement. However, which plan is most suited for your financial requirements? Checkbook IRA is one of the most famous retirement plans for self employed, especially because of the freedom of investment it offers.

What is Checkbook IRA (Self-directed IRA)?

Checkbook IRA or self-directed IRA is a retirement account that allows you to choose different types of investment options for your retirement fund. You can invest in pretty much everything except federal or state registered securities. You have the freedom to purchase a rental property (Real estate IRA) or use it for down payment for the property. You can put your money for funding small businesses or lend it to venture capitalists for healthy returns.

Are there any potential issues with Self-directed IRA?

Well, there is no doubt about the investment potential and shelter offered by Checkbook IRA but losses can be messy. If you lose money in your investments, you cannot use them in the form of tax deductions. Similarly, at the time of withdrawal, you will not enjoy the tax benefits of capital gains.

How do you choose a profitable investment? Most of the small business owners are involved in their business, which makes it difficult to take the right investment decisions. Checkbook IRA is suited for your retirement only if you have the time to manage your investments. In addition to it, you would require legal help to ensure that all your investments are legit and will offer fruitful returns in future.

Another common trend among self employed professionals is to allow third-party managers to handle their self-directed IRA or invest with them. Be careful with these managers, as the number of frauds in self-directed LLCs is on the rise. If you plan to invest with an individual, make sure to run a background check and spend ample time before putting your retirement money at stake.

What is a Roth 401k and Is It the Right Choice for you?

What is a Roth 401k

What is a Roth 401k

Often, when business owners learn about Solo 401k , they will also come across the concept of Roth 401k and its advantages. So what is a Roth 401k and is it the right retirement option for you? Here is a closer look at Roth 401k plan and its availability to Solo 401k account holders.

A Roth Solo 401k is only different from Solo 401k account on tax payments and early withdrawal rule.

With a traditional 401k or a Solo 401k, account holders make pre-tax contributions to the fund, which means these contributions have not been taxed yet. The tax will only be taken out at withdrawals.

A Roth Solo 401k or a Roth 401k will accept after tax contributions only. This means account holders will pay tax up front for the contribution amount. Then the money can grow in the fund and when it is withdrawn, there will be no more tax on the contribution amount or the return from investing that contribution. So the main difference between a Roth account and a regular one is when the tax is calculated and paid for.

This difference means a tax benefit for Roth accounts. Your money will be able to grow tax-free, which means the earned income from investing the fund will not be taxed at all. A Roth 401k is also popular for account holders who believe their tax rate will increase in the future. By paying tax now, they avoid the risk of paying more taxes later.

Another small difference is that with a regular 401k or a Solo 401k, account holders cannot make early withdrawals from their fund without a 10% penalty tax, usually not until they are 59 ½ years old.

With a Roth 401k, however, the tax has been paid for upfront, so the account holders will not be taxed again on the original contribution amount, even if it is an early withdrawal. Even though the tax-free withdrawal is limited to the amount contributed, not the earned income from investments, this could be a big break for some account holders. When you needed some cash urgently, it is a popular option to convert your regular 401k into a Roth type account to avoid the penalty tax.

“What is a Roth 401k?” is a simple question to answer. It’s also worth mentioning that the process of converting your regular Solo 401k into a Roth account or creating a Roth sub-account is also quite simple for self employed individuals. Please note that not all 401k plan providers allow these options, so we recommend account holders to find the right provider who can help them make the switch.


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Retirement for Self Employed: US Self Employed Are Facing a Huge Retirement Crisis

Retirement Plans for Self Employed Individuals

Retirement Plans for Self Employed Individuals

“If my dreams could all come true paradise/retirement would be — in a little bungalow — somewhere by the sea.”
Author Unknown

Isn’t that what we all wish for? Retirement is one place where we look for comfort and wish to spend days doing nothing productive. Why one shouldn’t? After all, we have worked all our lives and a comfortable retirement is what we deserve at the least.

However, the dream for a happy retirement is looking somewhat shady for the American Entrepreneurs and Small business owners. According to a survey conducted by TD Ameritrade in 2013, nearly 40% of the self-employed individuals are not regular with their retirement savings whereas 28% have no savings and do not invest in any qualified retirement plans. A large part of this workforce agreed that they had to stop their retirement investments at one point or another because of a business or personal requirement.

What are the beliefs of self-employed professionals?

There is no doubt about the effective intelligence of entrepreneurs; however, they neglect retirement savings because of various reasons. Some of these reasons are listed here:

  • Business will provide sufficient savings for their retirement.
  • Strong belief that business will keep making sufficient profit and they don’t have to save for future.
  • Entrepreneurs invest all their profits back into the business for better growth.

Well, it sounds like a safe haven; however, there is no guarantee about the next paycheck. How would you survive without a regular income stream? That is where retirement options kick in. For an efficient retirement plan, start by preparing a cash flow plan for your retirement and make sure to include all your expenses in the process. This simple yet effective process will help you picture your retirement needs and the kind of income you would require to sustain you current lifestyle. You can choose a retirement plans for self employed individuals accordingly.

3 Retirement Tips for Self-employed Professionals

  • Create a systematic approach: One of the key tips is to create a systematic approach for retirement savings. Setup an account with automatic deduction feature and invest this money in a Solo 401(k) towards the end of the year.
  • Choose a plan that works for you: It is important to choose a retirement plan that works for you and suits your business requirements. Another important metrics is to evaluate the amount of money that you can contribute towards your retirement and choose a saving option such as Checkbook IRA. Further, you can always catch up with additional investments for retirees and balance overall savings.
  • Consistency is crucial in retirement savings: Above everything else, it is important to develop consistency in your retirement savings. Without regular contributions, you won’t be able to reach your target amount and one should never underestimate the power of compounding interest in retirement savings.

Important terms related to self-employed retirement:

  1. Retirement plan for self employed individuals
  2. Self employed 401 k
  3. Self employed pension

Having a 401k for Self Employed Can Be More Affordable Than You Think

401k for Self Employed

401k for Self Employed

It is a common understanding that there are fees associated with setting up and maintaining a 401k account. That is why some self employed business owners are hesitated to set up a 401k fund for themselves, thinking that expensive fees will eat up any return they may earn. However, this is not always true as a 401k for self employed individuals can be more affordable than most people expected. The key is to choose the right type of account, right provider, and take advantage of tax deduction available to keep the cost down low.

Self directed Individual 401k

A self directed account is the secret to keep your cost down. Traditional 401k accounts provided by banks, custodian or trust companies are often charged with expensive fees as the provider often takes charge of your investment portfolio. While these accounts may require a little less work, they are usually more expensive to maintain. With a self-directed individual 401k, account holders can make investments and take control of the portfolio by themselves. This helps eliminate a lot of management fees and help raise your rate of return.

Choosing the right provider

Each plan provider have their own fee structure, so make sure to talk to your provider and learn of any cost and fee there might be. Also, the best 401 k plan providers will offer a full range of service to help you properly maintain and grow the fund. For example, Solo 401k requires no tax filing if your account has less than $250,000 in assets. If you have a larger account and need to file tax, it is better to have a provider who can also help you file tax and avoid unnecessary fees and penalties.

Tax deduction

Most people often overlook the fact that you can claim a tax deduction for the cost of your 401k account if it is paid for from your business fund. Just like any other business, a small, self employed business with no other employee can also claim the cost of retirement plan and contribution to employee’s retirement fund as an expense. This tax benefit will lower your tax bill, and in turn, offset your overall cost of having a 401k.

Costs and fees will lower your overall rate of return and that’s why experienced investors are always looking to minimize their costs. A self directed 401k for self employed individuals will help you achieve that goal, among many other advantages.


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Retirement Plans: Common Retirement Mistakes Made by Small Business Owners

Best retirement plan for self employed

Best retirement plan for self employed

There has been a lot of discussion over the insufficient retirement savings of the American adults and aging population. However, there is a particular group that has not received any attention in the past several years i.e. Small business owners.

According to a study conducted by the American College, as many as one-third of the small business owners do not invest in a sponsored or personal retirement solution such SEP IRA or solo 401(k). Further, nearly the same number of people has no idea of their expected income requirements after retirement. It might have been okay in case of employees considering the pension plans offered by their employers would do the same; however, it is quite surprising in case of small business owners because they do not have anyone to provide income in their golden years.

Small Business Owners: What are the primary reasons of having no retirement plan?

  • Survival in business is the priority: It is quite common among startup and growing business owners to re-invest in their businesses instead of planning for their retirement. Retirement plans are often suppressed during financial crisis and volatile market conditions.
  • Relying on business to pay for retirement: A large ration of small business owners rely over the residual business income for retirement and some even selloff the business at the time of retirement. Most of the business owners do not rely over stock investments or bond funds as their retirement plans.
  • Retirement is not in the picture: A large part of these enthusiastic business owners involve people who love their business and would continue to work in it. Life without their business is hard to imagine. They just enjoy the moment and keep on working as long as their circumstances allow it.

Are these reasonable practices? Well, definitely not because most of the small business owners often find themselves running short of funds either because of failing business or insufficient savings in their later retirement years.

What are the retirement plans available for small business owners?

It is crucial to invest in different types of qualified plans and build a retirement nest starting early in life. The market is full of retirement plans for self-employed and small business owners. Another benefit of investing in retirement funds is the tax saving they offer along with the financial security.

  1. Solo 401(k)
  2. SEP IRA

If you are a small business owner, it makes perfect sense to start investing in a retirement fund starting this year. After all, you deserve to live a comfortable life after several years of hard work.

Most Common Mistakes with Retirement Accounts for Self Employed Individuals

Retirement Accounts for Self Employed

Retirement Accounts for Self Employed

Self-employed individuals are very business-savvy, ones that are strong and independent enough to stand on their own feet. However, even the best among us might make mistakes sometimes when it comes to retirement plan. With so many pressing issues at hands to keep your business off the ground, your retirement prospect just seems to be so far away. Correcting the mistakes now could give you thousands of dollars when you need it the most. Let’s take a look at some of the most common mistakes people are making with their self employed retirement account.

1. Not saving enough

The most popular feature of a Solo 401k account is its high contribution limit, which totals up to $56,500 per year. Once you have the retirement plan though, it is your decision to max out that limit or not. Decide how much you need to save for retirement, and make yourself reach that goal. We think it is a wise decision to save as much as you can. This money will grow on a tax-deferred basis, so the sooner you start saving, the better you can take advantage of this tax benefit.

2. Not knowing what type of investments are in your portfolio

Retirement accounts for self employed individuals offer the widest variety of investment options, ranging from stocks and bonds to real estates. It is easy to give it all up to your custodian to make the investment decision for you. However, at least try to understand what is in your portfolio in order to decide if it is the right solution for your future. Ideally, the flexible plan is created to give account holders more control and you should take advantage of that with a self-directed account. This way, you will be able to make investment decisions without the spending too much on custodian fees.

3. Forgo the loan option at all costs

Although it is true that taking money out of your retirement account is not an ideal solution, but the loan option can be beneficial in certain situations. What people often overlook is that the interest to borrow from your Solo 401k is much lower than the interest rate of a traditional bank loan. The unique feature of this retirement plan is that qualified loan is tax free and penalty free. Just remember to consider your options, and abide by the Solo 401k rules to avoid unnecessary penalty.

Overall Solo 401k is one of the best retirement accounts for self employed individuals, and setting up a Solo 401k is the first step to ensure a secured retirement. The next step is to keep your fund in check and ensure that you make the most out of your retirement account.


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