Self Directed 401k Plans — Video

What this episode covers

Though most are acquainted with self directed IRAs, the majority haven’t heard of or don’t know much about self directed 401k plans. I’m speaking of what’s known as a Solo 401k. Download Audio   Transcript:   When you establish a self-directed solo 401(k) plan, that plan — the key word there is solo. It is for you. Its’ not for anybody else. Now there’s an exception to that. You can have a self-employed business and if your spouse is an active participant and legal participant in that business, your spouse can be included on that solo 401(k) plan and the IRS still considers that a one-person plan. Also keep in mind if you hire a spouse and he or she is part of your business, you of course have to follow any state or federal regulations pertaining to the establishment of the business, so always keep that in mind and review things with your tax professional. The bottom line is solo plans are just for you. Saying that, what are some pitfalls or some traps that people can intentionally or unintentionally get into with a solo plan? Let’s say a person hires a spouse or their spouse is part of that business. That’s great. They can be an active participant, they can be paid wages, they can make their own contributions as elected deferrals into their 401(k) plan, but, what if the spouse is added as a participant but they’re not truly a participant? They’re not truly an employee of that business? Well, now let’s say that spouse rolls over funds into the plan. Big problem, because that person’s not even an active, justifiable participant of that plan. Better yet, what happens when somebody, they’re getting busy, they’re making a lot of money, they’re doing a lot of transactions. All of a sudden, they’re getting busy and they hire somebody and they don’t even necessarily intentionally think about this. The bottom line is, remember, those documents for your plan, for that solo 401(k) are just for you and potentially your spouse; no other what’s called common law employees. Common law employees would be somebody that you hire on full-time. They’re not part-time, they’re not seasonal, they’re not under the age of 21, and you bring them on. Guess what? Now you’re plan documents are no longer valid documents because they were written solely for that individual solo plan and by you adding on that participant, that just created a problem with compliance with your plan documents. Remember, always keep in mind that if you’re establishing a 401(k) plan, it’s a great plan because there’s a lot of great benefits that are going to be afforded to you, but keep it simple. Make sure that it only is a plan for you and potentially your spouse.

PodParley-generated summary based on available episode metadata and transcript content.