Choose an account type
August 19, 2021
Is this plan right for you if you’re a self-employed individual, or small business owner?
First let’s talk about who is eligible for the plan. Eligible people include small business owners:
Talk to a CPA or your financial advisor to advise you on that. It is important to know that to legitimize the 401k means making a first year’s contribution.
If you’re eligible for the 401k, it gives you tremendous tax benefits. The fact that it’s a solo 401k or solo QRP puts the administration in your hands with checkbook control.
This is one of the big benefits to a solo QRP. However, this can be good or bad.
The good sides to this are:
These responsibilities can be good and bad.
If you have a bookkeeper that can handle those things for you, that can be a great idea.
In the end, it puts you in more control of your retirement assets.
Now, when it comes to investing, the solo QRP allows you to invest in anything except collectibles.
There is a wide array of investments that you can make, including:
The investment options allowed in a solo QRP are almost endless.
Other benefits with the solo QRP are the fact that you can make large contributions.
Now with any QRP or 401k, remember there are two sides – or two buckets – that you’re making contributions to:
When you’re self-employed or small business owner, oftentimes you’re both. (You’re the owner and the employee.) With that understanding, you can make both sides of the contributions.
With your employee contribution (or your salary deferral) that can be up to $19,500.
You can choose to make those contributions either traditional or pre-tax, or you can make them after-tax Roth.
So, one of the coolest things with the solo QRP is the fact that you can make large Roth contributions, and it can be based on the first $19,500 you make on income to your company.
Now from the employer side, you can make a percentage of your income as a contribution. This means:
As you can see, you can make much larger contributions – and even make much larger Roth contributions – compared to contributing to an individual traditional IRA or an individual Roth IRA.
Another benefit to the QRP is that in the event of emergencies, you can take a loan from the QRP.
The amount can be up to $50,000 or 50% of the value of the QRP – whichever is less.
This is much different than an IRA. IRAs are prohibited from giving you a loan.
With a QRP, you can take a loan from the QRP and repay loan, based on prime interest over a certain amount of time.
Another benefit to the QRP is that if you’re buying debt-leveraged property (those with loans, either property with financing or property that has existing financing) you don’t have to pay unrelated debt-financed income tax (UDFI tax).
In an IRA, this is typically called unrelated debt-financed income tax.
So to reiterate:
One of the benefits to having a solo QRP – if you’re eligible – is that added benefit to not having to pay UDFI when you’re buying debt leveraged property.
The last benefit is that using a solo QRP is cheap. If you’re doing a lot of transactions (you’ve got a lot of activity with your retirement portfolio), a solo QRP with the administration in your hands eliminates much of the fees you’ll find with an IRA custodian that has to process all your transactions.
If you’re interested in finding out more or setting up a solo QRP / 401K, contact us. We’re here to help.
If this was helpful to you, make sure to stay connected with NuView Trust by doing the following:
We go live with education almost daily.
We love to provide investors the true story of what’s possible inside of an IRA, and possible inside of a 401k.
See you soon!