What is an Individual 401(k)?
An Individual 401(k), or a solo 401(k), has the standard rules of a company 401(k) but which covers a business owner with no employees. This can apply to a sole proprietor, an individual LLC, or even a single-owner S Corp or C Corp
What is a self-directed 401(k)?
A self directed 401(k) is a 401(k) which allows the trustee of the plan to “self direct” your investments. You will be able to pick your own investment options rather than be restricted (as you are with most employer sponsored plans).
In fact, it’s actually more flexible than most IRA accounts. With a self-directed plan, you can invest in real estate, private equity, and other assets not offered in any standard IRA.
What’s are the benefits of a self-directed 401(k)?
The biggest benefit of a self directed
401(k) is flexibility and control. In addition to stocks and bonds ,with a self-directed plan, you can invest in real-estate, private equity, precious metals, and more.
The other benefit, and where My401k is focused, is the ability save more with such a plan than with any other retirement option for self-employment income, by utilizing after-tax contributions (the “Mega Backdoor Roth“).
Can I really contribute more than $19,000 to my 401(k) in a given year?
Yes! In addition to the pre-tax contributions you make to a traditional 401(k), you are entitled to make post tax contributions as part of a designated roth 401(k) up to a limit of $55,000 in 2018.
What is a Roth 401(k)?
A Roth 401(k) allows one to contribute after tax income instead of the pre-tax contributions which go into a Traditional 401(k). The contribution limits are the same as those for a Traditional 401(k). The key benefit is that you can withdraw your earnings tax free in retirement.
More information can be found at https://www.morningstar.com/articles/877463/traditional-401k-or-roth-401k-which-is-right-for-you
What is a roth conversion, and this “Mega Backdoor 401(k)?”
This is the key item we offer our customers.
A Traditional 401(k) can be converted to a Roth 401(k), should one find the Roth option preferable. Sometimes it’s just to enjoy tax benefits in the future rather than today.
However, this roth conversion is helpful in other ways. Namely, the “Mega Backdoor 401(k)”.
To understand this, one must first consider that there is a third type of 401(k) account: the post-tax, non-roth account. Here, one contributes funding post-tax, which gets taxed again at distribution. It doesn’t sound particularly helpful, but it can have two key benefits:
– Beyond the standard $19,000 one can contribute to a Traditional or Roth account, this special account allows an additional $36,000 in contributions for 2019.
– New tax laws allow these accounts to be converted to a Roth 401(k) account.
Essentially, this allows you, with a couple steps, to contribute an additional $36,000 to your 401(k) annually. More information can be found from this article.
However, this is not available through standard Individual 401(k) accounts offered through brokerages. It can only be provided by setting up your own self-directed plan. My401K Is the easiest way to do that.
If I have a 401(k) at my employer, can I really have another 401(k) for my side gig?
Yes! Legally, you can fill the 401(k) at the company that you work, and still have a 401(k) for your side business. It is best to consult with an accountant to understand exact limits based on your situation, but this article best summarizes the rules.
How can some people contribute up to $55,000, and others contribute $122,000?
This depends on one’s age and marital status. If single and under 50 years old, you may contribute up to $55,000 to your solo 401(k). If over 50 years old, with an additional $6000 catch up contribution allowed, the maximum becomes $61,000.
If married, you may add your spouse as a partner to the company. Your spouse can then contribute to another individual 401(k), with the same $55,000-61,000 maximum.
How do I know if My401K is really a good fit for me?
My401K focuses on people within a particular range of self-employment income. We have a calculator to help evaluate your situation, but in general:
– If single and earning $24,000-$200,000 in self-employment income, or
– If married and earning $50,000-$400,000 in self-employment income,
My401k can help you maximize retirement savings.
If you’re earning less or more than the above ranges, My401k is likely not as helpful for you. However, feel free to still contact us as we enjoy providing guidance and recommending other services that may be a better fit.