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If you are looking for more flexibility, lower overall costs, and the freedom to have real control over your retirement plan, then a self directed 401(k) plan may be for you. You can choose which account to fund: your before tax contribution or your after tax Roth account contribution, without the income limitations imposed by IRA's.
You do not have to use a custodian or third party administrator, and that can save you thousands of dollars in custodial fees over the life span of your plan.
With a Genesis Tax Advisors self directed 401(k) plan you have no annual maintenence or asset management fees!
And, you can borrow directly from your self directed 401(k) plan, pay yourself interest, and use that money for virtually any reason (subject to IRS requirements and provisions).
With a self directed 401(k) you will enjoy:
- Higher contribution limits
- No custodian fees
- Both pre-tax and Roth accounts under one umbrella
- Roth contributions not subject to income testing
- Loan privileges - borrow funds for any purpose
- Profit sharing
Here is an overview of the main differences between these two types of plans.
|
Features |
SDIRA |
Individual 401(k) |
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Contribution Limit (2011, or as otherwise stipulated by the IRS) |
$5,000 to age 49, $6,000 age 50 and above |
$16,500 (+ $5,500 age 50 and above) pre-tax contribution and a maximum of $49,000 allowed between employee election and company contributions and/or profit share |
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Employer Matching Contributions |
Not Allowed |
Your business can match 100% of employee deferrals |
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Profit Sharing Allowed |
Not Allowed |
Your business can profit share in addition to, or in place, of matching contributions |
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Roth Provisions |
A separate Roth account must be established and will have its own additional custodian costs |
A separate Roth account can be established and will have its own additional bookkeeping requirements - no additional custodial costs |
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Roth Contributions |
Contributions can be very limited - $5,000 in 2011 but not allowed when AGI is above $107,000 single or to $169,000 joint - fully phased out at $179,000 |
Up to $16,500 after tax (+ $5,500 age 50 and above), employer contributions and profit share must be pre-tax however |
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Roth Rollovers |
rollovers allowed from one plan or custodian to another |
Rollovers generally not allowed, however, 401(k) will allow rollover to individual Roth IRA |
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Roth Conversion |
Conversions from traditional IRA to Roth IRA are allowed |
Conversions from 401k Roth account to Roth IRA are allowed |
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TAXATION - UBIT/UDFI (Unrelated Business Income Tax / Unrelated Debt Financed Income Tax) |
UDFI applies to leveraged transactions |
UBIT applies but with certain exemptions.
UDFI does not apply to leveraged real estate |
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Purchase a Franchise |
Allowed |
Allowed |
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Government Reporting Requirements |
Recommended |
Yes, more specifically form 5500-EZ is an annual requirement for accounts above $250,000, other reporting may be required depending on investment choices |
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Loan Provisions |
Not Allowed |
Allowed, with certain pay back requirements and specific limits on amounts available |
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Tax Credits for low-income individuals |
Not Allowed |
Allowed, up to 50% of first $2,000 with certain income limits (see IRC § 25B) |
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Lease-back property purchased by plan |
Not Allowed |
Allowed, but with certain occupancy limits |
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Purchase of Business |
Allowed, but no "s" corps |
Allowed, UBIT will apply outside of any exemptions |
Copyright © 2012 Genesis Tax Advisors, LLC. All rights reserved.
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