Solo 401k vs. IRA, LLC

What is the best way to add real estate to your portfolio. A self-directed IRA is the answer. A bank or trust company acts as a custodian for the IRA account holder. After you open a self directed IRA you can roll your retirement accounts over to this, and then have ell the custodian how you would like to be invested.

This can sometimes be costly though, as the custodian can charge fees. These fees can either be transaction based, percentage based, or both. Another downside to this is the fact that the custodians are now restricted on what they can invest your money into because of company policies. The custodians can also be slow to react to an account holders needs.

A way to get around some of these downsides is create an IRA LLC, Limited Liability Company. The LLC is created and the IRA account holder directs the custodian to invest some or all of its funds into the LLC. The account holder then manages the LLC. This allows the account holder more freedom to invest in what and when they want. The account holder now has complete checkbook control over their account, and does not have to check with the custodian to invest in an asset. Doing this significantly reduces the role if the custodian. This eliminates the delays of transacting, as well as SOME of the fees.

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Steps for IRA LLC

  1. IRA opened at custodian
  2. LLC is created
  3. Account holder directs IRA to be invested in LLC
  4. LLC further invest without involvement of custodian

There is a much more direct control through naming yourself trustee of your Solo 401k. BY starting your own solo 401k, you do not have any 3rd party that you have to go through, since you are the custodian of your account. This eliminates the cost having a custodian manage your account, as well as the cost of setting up the IRA, setting up the LLC, and the LLC accounting costs.

The solo 401k allows you to contribute large sums of money, up to 10 times higher contribution limits than the IRA. It also allows for tax deferred growth, the ability to borrow from your retirement account, direct checkbook control, and unlimited choices when investing.

Paul Sundin

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