Why A Solo 401k Is The BEST Way To Build Wealth (and retire)

You should know about the Solo 401K. It's the best way to build wealth. You can put more money in it than an IRA.

Over 45% of Americans now have a side hustle. That's the gateway drug to a Solo 401k because you can do it on top of a Roth. You can do it on top of a business. Your day job. 401k you can do with rental real estate.

You personally cannot create a 401k, 401ks and a solo 401k has to be adopted by an employer for the benefit of its employees.

Having rental property is a side business that we can move money into a solo 401k. We have a technique to do that. So having rental property is a side business. Welcome, everybody, to this week's episode of the Main Street Business podcast. Mark Kohler here with Matt Sorenson. Exciting topic. This is your Halloween episode. We are bringing treats, not tricks. I mean, we got, we got. This is a treat today. You're gonna love it.

Today's a delicious treat. You know, you don't have to wear a costume to get it. We're talking about the Solo 401K. This is the number one retirement account for self employed people. If you are self employed, you should know about the Solo 401 kids. The best way to build wealth, you can put more money in it than an ira. It's awesome. We're going to break it down on how it works, how to implement it. And Mark, this isn't just for boring Wall street investing either.

No, people, let me say this right out of the gate because some of you don't want to listen to this. You're like, you may have a couple preconceived notions. First, millions of Americans equate a 401K to stock. A 401K to the Dow, to NASDAQ, to Wall Street. They're like, well, I just don't want to put more money in Wall Street. We don't either. But the 401k is a vehicle. What you put in the backseat, you can put whatever you want in there. And I'll tell you right now, you got junk in the trunk. Let's get it out. Let's get some sweet ride going with some real guests that you want in your car. So the 401k is just a vehicle. You get to decide who rides with you. And, and number two, there are deadlines. The next 45 to 60 days are absolutely critical if you're going to do it. And even if you already have a solo 401k, you got to take some action in the next 60 days to take advantage of every nuance. So we got so much to unpack here. There's urgency, there's so much reward on the back end is super important.

Yeah. When we say solo 401k, what Mark's talking about is it's a vehicle. It's something you can put money in. You can get a tax deduction if you do traditional, or you can build it and it comes out totally tax free. If it's Roth, we're going to hit this today. But you get to choose what investments are in it. And you don't just have to buy mutual funds or stocks. You could buy real estate or a small business or invest in crypto or a private fund or something like. These are all assets, your 401k, you don't think, like Mark said, you got to go buy a stock or an ETF or a mutual fund. So we're going to cover that. But what I'll say about the 401k, but to give the solo 401k, what we're hitting today is if you're self employed with no employees, this is a no brainer.

Okay?

This is this little loophole in the tax code where if you're self employed, Congress has said you can do a 401k and if you don't have employees, you can make it as generous as you want. You can make all the max out contribution rules, you can match as much as you want to throw as much money in. And you know what, if it's your own business and you're such a great employee, let's be honest, you are. You can max out all these things. You put $66,000 a year into these things. And people doing an IRA.

Yeah. And, and here's a couple other. This is that we're trying to pull back the curtain here and, and throw this out as well. Having rental property is a side business that we can move money into a solo 401k, we have a technique to do that. So having rental property is a side business. You having a day job with a 401k at work, that's okay. If you have a side hustle, we can do a solo 401k there too. Do you know there's over 32 million LLCs in this country? Over 45% of Americans now have a side hustle. That's, that's the door. That's the gateway drug to a solo 401k because you can do it on top of a Roth. You can do it on top of a biz, your day job. 401k you can do with rental real estate people. We have the answers. This should be like eye opening.

Let's hit a couple other reasons why. So you can put a lot more money in than an ira. You can do Roth dollars and. And under new laws that changed just this year that went into effect in 2023, you can do 100 Roth dollars if you want. That's a new thing. You can self direct. As we've talked about, self directing. If you're listening here on the directed IRA podcast or on Main Street Business podcast, we're always talking about self directing. Right. And if you have a spouse, you can double up on this. It's twice as good if you have a spouse involved in your business. So we're going to break down kind of who, how you fit into this. Mark talked about main hustle, side hustle, even this side door 401k strategy we have. We're going to talk about how you do it, what's required, what does the IRS require? You got to set some stuff up. There are some legal requirements, but that's why you got us and our law firm. We got you how to get your money in and then how to operate this thing and then some other cool perks that are just some little things you need to know. We see clients use. They're kind of cool little strategies and things that are unique to a solo

K. I love it. There's our roadmap using the car analogy, sticking with that for a moment. We've got our roadmap for this vehicle that we want to have in your garage. And you can have a Roth IRA in the garage. You can have a health savings account in the garage. You can even have your day job 401k parked in the garage. But this little solo 401k is a wonderful vehicle that you get to drive the way you want and put in it what you want. So let's start to unpack. So we got the why it obviously. And I'm going to add one more why people don't do me. Don't do what I did for 20 years. I put every dollar I made back into my business. I did well. My partner here on the show, much more visionary. He would just peel off a little bit. I wouldn't say a lot. And I'm speaking on your behalf, Matt. Hope that's okay. Matt. Matt was always putting a little money in a Roth he was always putting a little money in his 401k. He wasn't, you know, all in every year, he still bought rental properties. I bought a little rental here and there. And we have some real estate. But I put all my money back in my business. Folks, if you have a side hustle, if you have a small business of any size at all, I know you want to bet on yourself. You want to put that money back in your business because you trust yourself. But let's peel out enough to build this other vehicle. And you can, you can build it with small business syndications, real estate. You don't have to go to Wall street, but this is the why. You don't want to be stuck at age 40, 50, 60, with a great business, but no other bucket, no other vehicle in the garage. Just that one business in the car in the garage. And if that breaks down, you're hoofing it. You got to have other vehicles in the garage to turn to.

Yeah. Now, speaking of vehicles, I know you said you could put your. You even your day job, 401k could be in the garage. I was thinking that was more like on the driveway type of a situation. I didn't think you'd qualify for garage.

In fact, maybe we got to put

it out on the street, you know?

Yeah. I'm in Idaho today with snow on the ground. Matt's in Phoenix, where it's beautiful. And you don't want to be on the street in Phoenix with your car. It'll melt the paint. And then here in Idaho last night, I got into Idaho last night out of the airport, and I was like, damn, I didn't put a snow scraper in my truck last time. I left it here at the airport. So I had to do the old pull out a credit card and destroy it on the windshield. Trying to. That's the old technique some of you have used anymore.

All right, well, let's break this down. Okay. I want to talk about who this works for. Now, we've mentioned that you got to be self employed. We're going to unpack this a little bit because there's some, some nuance to this. But the general rule is you have to have an operating business. Okay. Let's say you're a real estate agent. Lots of real estate agents use the Solo 401K. You're a 1099 contractor. You have, you're a consult, consultant, whatever. Like you are solopreneur. You don't have other employees. Okay. It's just you. Or maybe a business partner. Or spouse or some family. But you don't have other third party employees. That's where the solo K works and why. Why Congress and the IRS has said knock yourself out, match the heck out of it. Throw as much money as you want into it up to 66k because it's just you, you're not having to match it for every employee you have. So that's kind of nuance here for solo cave. Self employed with no other employees. Operating business though, I love it.

And we'll come back to operating. But as an aside for any of you out there that have part time employees, you still may qualify. It depends on how long they've been with you. Some of you may have one full time employee that's not even been with you a year yet. You might be able to pull off the solo this year. There's some. When you do a consult with one of our lawyers, they can tell you based on your fact pattern, can we squeeze in the solo 401k for a year or two and then bounce it out to an IRA? Which is fine. And also don't be dismayed. You can do what's called the safe harbor. 401k. It's a little safe harbor. It's out in the ocean. It's a little harbor. You can go out there and park your boat and you can go there and have a 401k. You just got to bring some employees with you. And it's not expensive. It really is not that bad. So that's another topic for another day. But I just don't want you all to freak out. Now if you have a day job 401k and you're like I have rental property, how do we convert that rental property into ordinary income?

All right, well the rental income does not qualify itself. So that llc, we're not going to adopt a solo K in that llc. But do not be despair dismayed. We've got an option, okay? It's called the side door 401k. We are going to set up a management company that is going to perform management services to your rental. You are going to pay income from the rental LLC over to the management company. And this is going to be a sole proprietorship. It could just be on schedule C. You're going to pick it up as income on schedule C. And generally we never do this. Like for our rental clients. Many of us know the trifecta. Just collect your rental income in there. It's rental income. You don't pay self employment tax on it. It's Great. Don't, don't push it over to a management company unless you want to qualify for a solo K and start making solo 401k contributions. So that's where we set up the management company. We push income over and then it's going to contribute into the solo K. That's the whole reason we're doing it, is to get the contribution into the solo K and to qualify the solo K. Because even sometimes you have clients who are like, Matt, I've got an old employer for 1k with $300,000 in it. I started my small business and I have a solo K. And that, my little business. And I want to roll over that corporate America for 1k. But I want to do a solo K. I don't want to roll it to an ira. Cool. Well, you can do the side door method, or we can do it in your main, your, your main hustle too.

Now I'm going to go deep. This might even be a cut for a separate little short on YouTube. Here is a very fun technique with your solo 401k. When you have rental property, let's say you're not a real estate professional. You got the day job, you get the match at work and you get out and you got these three or four little rentals. And you want to contribute to a solo 401k to do other things, real estate, small business, syndications. Well, you may say, well, I don't have enough cash flow in my rental business to even support a 401k. And it's not ordinary income. So that's where you put money into the llc, personal money to fund your rental property business. Your LLC with rentals set up the side management company to run that llc, which we would never do except for this instance. Now, the LLC with rentals has enough money to pay the management company. That's where it happens. So you let money in, pay the management company. Now the management company is like, well, I got to, I got to take care of this with an employee. Oh, there's my solo 401k contribution. Now if you do a Roth, you're going to bring that money over and it's going to be a deduction on the Schedule E. Then it's income over here. But you're going to send it straight to a Roth. So you're going to pay some tax because you want that Roth money to be growing. Cause that Roth is powerful. Never pay tax again. But if some of you are like, well, I want a traditional write off. Ooh, now you're Getting a write off in the schedule E, you're zeroing out the management company. But the schedule C, and what's happening, you're building up a carry forward loss over there on your rental property portfolio. So when you go to sell one of those rentals tax free, don't you need a 1031? Your 401k has created a loss to sell your rentals tax free. And now you got a 401k that's growing as well. Very unique, but very powerful.

Yeah. So use that side door method for any of you with rental properties. But you that just have an operating business, you got the side hustle, the main hustle. Many of you know, we like the S corporation over here on the side, that's probably the most common entity we're going to see adopt a solo 401k. It's that solo K, or excuse me, it's that S corp that's going to adopt the solo K. Now, we've been saying some words here and I just want to make sure understands this. You personally cannot create a 401k, 401ks. And a solo 401k has to be adopted by an employer for the benefit of its employees. So your S corporation is an employer. It employs you. You get a W2, you know, your sole proprietorship, whatever that is an employer. And you are the sole employee of that, proprietor of it. So the company is always adopting the 401k. And then each individual person that works in that business gets an account. So now in these accounts you can have a traditional account or a Roth account. You can have both. Okay, so you can choose whether you want to do the traditional dollars. Because a lot of times like this time of the year, clients like looking for tax deductions. Like, man, I want to get some write offs. And we're like, all right, how'd you. I made a lot of money this year. Okay, cool. Do you have a solo 401k yourself, employed with no employees? Nope. I can get 66 grand right there, which is your spouse working the business. I got another 60 grand right there. Now those are traditional dollars, remember? But they will give you a tax deduction now. So if you're chasing that today, that is one of our tax planning strategies. We look with clients at year end. But like Mark said, if you're like, if you have the discipline and you're okay paying the tax, you can do the Roth dollars and you can do again, like I mentioned earlier, the whole 66,000 can be Roth now starting in 2023.

Yep. And there's a third option. You can say, I'll take the traditional this year had a big year. I got a big bonus at work, sold a business, had some extra income. I need that write off next year when I'm in a lower bracket, I'll convert it to Roth. So you can always convert money inside the traditional to Roth. Lots of flexibility here. One other thing too is I want to make sure all of you know when our attorneys, if any of you are like, I need a tax plan. Holy crap, guys, you're throwing out so much info right now. Between now and the end of the year, our attorneys are getting booked out daily and we're going to be full for December shortly and it's filling up for November. We do a year end tax planning consultation, we build you a trifecta, we go through your return, we give you five to ten strategies. It's around 15, 1600 dollars. If we don't save you three times that on the call, it's a fail. And my attorneys have a 30 point checks checklist. They're going to go through with you. And the 401k is just one of them. And so what you want to do is orchestrate this process. And even if you have a good attorney you like or a CPA you enjoy or accountant, that's fine. Get a second opinion, get a tax plan, take it to your team. Because one thing I always want to see you do is do your Roth first. Do your health savings account, look at college savings. Have you bought a rental this year? Are you out of debt? Okay, boom. And you're having a big year, solo 401k. Then you go, well next year it's going to doesn't work out. The Solo 401K doesn't go away. You can dial it up, dial it down, put more fuel in the tank or just let it ride. All sorts of options.

Let it ride. Okay. All right, let's talk about how you actually execute this. Now the first thing you need to know is you must have a pre approved plan document. You can't just make your own solo K or pull some document online. All right, you have to have a approved document with the irs. Now our law firm, Kickos Lawyers, we have a pre approved plan document with the IRS that you can do Roth accounts and that you can self trustee, that could be self directed. You can do participant loans. Like we have the most flexible kick ass. Can I say that here on our show? I can. Yes, you can. Yes, it is kick ass solo for 1k. Document that lets you do all the things that we want our clients to have options to do. And so when you're set up with us, and like Mark said, you're going to a consult with one our tax lawyers, they're going to go over your situation and we are going to adopt the solo 401k plan under our pre approved plan doc with the IRS. Now you have the actual plan set up and we love to get this set up. If you're thinking about this for 2023, you need to have it set up by December 31, 2023 to have the maximum amount of contributions eligible. Don't be calling us on, you know, Christmas Eve being like, oh, I gotta get this going. Can you guys pull it off? No. The IRS shuts down like the last week of the year, by the way. It's totally ridiculous. So we are really pushing clients right now, as Mark mentioned, even for year end tax money, but also for the solo K to get in. And we have a special right now. Yes, throw that out there.

Okay.

And when you work with an attorney, or 50 bucks off if you do what's called our docs only, it's only going on for two to three weeks. Make sure you're getting in for it. Starting to run right now.

Yeah. And a lot of people are like, well, this is. How expensive is this? That, that's. Break that down. We have that special. So normally it's 999. A thousand bucks to get a solo 401k and a full hour with an attorney to explain and unpack it for you. 100 bucks off. We have a docs only with a paralegal that kicks it out. And by if you call us in early December, that's what you're going to have to do. The attorneys will be too busy to talk to you. You can schedule an hour with them in January, February. But do the docs only with a paralegal. 500 bucks, $50 off maintenance. We have a custodial service where we'll take care of the reporting, kind of tracking things for you from a general standpoint and keep a finger on you and say, okay, it's time to do your 5,500 easy and all that. What is that? 300amonth? I mean, 300 a year, 395, 400 a year.

And that's. And we do Roth conversions, we do your 1099s. Obviously you're getting statements and we're also there as a support and resource to help you with stuff. Can I do that? Can I do this? You know and helping you kind of understand the rules. That's what we do at directed. So those custodial accounts are company directed trust company where we're doing IRAs and 401k accounts. But you could self manage it too and be like, nah, I don't need it. Because in solo case, one of the perks is you can self trustee it. See, with self directed IRAs you have to have a custodian. But in the solo case space, even the 401k space in general, the business owner can self trustee the plan. You don't have to have a custodian. Now many people use direct and I'd say about 2/3 of people who do a solo K do because they like the support and it's, it's relatively inexpensive overall. But if you don't want to, if you're like I'll save the cost guys, just keep my plan up to date. I'll pay 150 bucks a year. We kind of have a do it yourself model too.

Oh, and you know, here's, here's what you're going to hear out there. Let's just address it. Your stockbroker is going to poop on the solo 401k where you self trustee. What? Why? Because they don't make money on it. When you self trustee, they want you to set up the Schwab 401k, the Fidelity Solo 401k. Why? Because they're going to be dipping into it 2 to 3% throughout the year to give you that fun little platform with that app on your phone. And you may want to do that. Some people are like I don't want to self direct. And that's cool. Go to a big bank, go to the big brokerages, set up a solo 401k. There's and day trade your little heart out. And they'll do it for free with

our solo K if you want it. And some clients do that. They're in between self directed investments or they're just getting a year of contributions in. You can buy stocks and mutual funds in our solo K. Yeah. And it's here when you're ready to self direct too.

It's true. And being transparent. If all you're going to do is ever just day trade stocks, a self directed 401k is not for you. But if you want to or plan to in the meantime, we still have that platform. But we don't have a kick ass app where. Well hold it. No, we do with our third party provider it's pretty straightforward option with Tradestation

for solo K is where you can have an app and trade and day trade if you want. And I think that's good for the clients that are looking to self direct in the future. So you get the plan set up. It's the right self directed plan. Maybe you get a year or two contributions in and you can do that first. If like you want to buy a property or do a private money loan and it might and you're starting at zero, you know that we have a lot of clients who would just start with us and get a couple years contributions and until then they're just doing stocks or mutual funds and that's totally fine. I mean you can do that. So you can do that with us. But if you're like no guys, I'm a day trader, I just, I love stocks. I can, I'll have a million bucks in this account and it's going to be 100% stocks. Cool. Go to Fidelity or TD Ameritrade, you know, but remember. And they have solo 401k plans but their solo 401k plans are captive to them. You can only buy what's on their platform, which is stocks, bonds and mutual funds. Here you can buy the stocks, bonds and mutual funds. We even have a tradestation brokerage account you can add on your solo. Okay. It's an extra hundred bucks a year and then you can self direct too when you're ready. And even clients are in between like a real estate deal or a private company or a small business deal or a loan or something, they'll go into the, to the brokerage account whether in between investments. So you got flex. Yeah.

And I think again being transparent, full disclosure. Because we don't want to ever be accused of sugar coating this. Having a solo 401k where you self trustee or even setting up a solo 401k to self direct people. It is like owning a gun. You've got to take care of it. You got to be safe. You got to know the, you got to get gun safety class. You want to make sure you understand all the rules and be careful with it. And this is where there's a lot of, you know, MSNBC talk show hosts or I won't call out names that give trading advice online. They're going to again poo poo the solo 401k because they say people screw this up. They don't know what they're doing. It's a loaded gun, don't give it to them. Well, we Believe in gun safety. We believe in 401k training. And this is why we have a podcast. We have monthly webinars. We have attorneys to help set it up for you. We have the custodial account management, which is 400 bucks a year.

That's it.

No, no big bank is taking a percent of this. It's all you. So those are. But you have to be engaged. That's what I'm trying to say. Folks, this is not a set it, walk away thing. What do you call it? Play it, set, set it, go, whatever.

Set it and forget it.

Set it and forget it. This is not a set it, forget it.

Yeah, that was the Ronco food dehydrator. You know, do some homemade beef jerky. Just set it, forget it. Eight hours later you got beef jerky or some potato chips.

I love banana chips.

All right, let's talk about getting the money in. Okay. All right, guys. I set up the solo K. I got my side hustle or main hustle or I did this side door 401k strategy to qualify. Now how do I get some freaking money in this thing? Well, let's talk about just rolling money over. If you have existing retirement account dollars, again, let's say you set up your own S Corp and you started your own business and you left corporate America where you had a 401k, we can roll those $401 in from your old employer 401k into your solo K. Now, that works whether those were traditional or Roth dollars, because we can create a traditional or Roth 401k account. So going 401k traditional, and Roth could always go in traditional Roth into the

solo k. That's option one. Option two is you may have some traditional IRAs sitting around and you're like, oh, this is from a previous employer that got rolled out. Or I've been contributing to traditional throughout my life. That traditional can get rolled up into the Solo 401k as well. Now, you can't roll up Roth money in. Regrettably, we keep hope. Yeah, Roth IRA money can't go in. But if you're thinking of converting to Roth, take the traditional, put it in the 401k first, then convert to Roth. So we hope Congress is going to change that. It keeps getting proposed here and there. Why they haven't figured that one out. But the Roth cannot go into the traditional 401 or Roth 401. You got to leave that little Roth vehicle out. Parking garage.

Roth iras will forever be Roth iras. You can't Roll it into anything else. It can only go to another Roth IRA. It can't even go into a Roth 401k in your solo K account. It's totally lame, but that's what it is. Now, even your SEP ira, because we have a lot of clients that are self employed and have been doing the SEP ira and they come to the light and they're like, ah, the solo K is way better. Because I could put more money in on less income. Just the way we're going to get to the contribution rules here in a second. But your SEP IRA could get rolled into the solo king. We see that quite a bit.

Yeah, yeah. Now, as before, Matt gives you some contribution amounts. Let me just say this. This is one of the beautiful things about the Solo 401K. You got to have it set up next 60 days, get on it, decide how much you want to put in, and make sure you're talking with your tax advisor before you're in on the dollar amount. You might want to defer. It's got to be set forth in your S corp on your payroll. Then you don't have to put it in until September of next year, period, which is super cool. And now, and what are the amounts? It varies dramatically. I mean, depending on what you want to do.

Yeah, it depends on what you want to do. But let me hit this on how you get money. And so all this rollover or transfer from an existing IRA or old employer 401k, that's unlimited. You got a $3 million account, that whole thing could come over. You got a $3,000 account, that comes over. Okay, so rolling over, there's no cap, but new annual contributions in. There's a limit on how much you can put. A lot of people are familiar with IRAs worth $6,000, but solo 401ks are. You can put in $66,000. Now, let me break down how that adds up. All right, let's take, let's say you're under age 50. This is how it works. For, for to get into 66,000, think of 401ks and any of you had a 401k to day job. There's two ways you get money in it, right? You put money in as an employee and the company throws some money in too. It's called an employer contribution or sometimes called the match. So when I'm putting Money in a 401k, I got my contribution employee, and there's an employer contribution. The employee Contribution max is 22,500. So I can put in 22,500 in as an employee. And the rule is as long as you have 22,500 in compensation, you can put in 22,500. So if I made 100 grand during the year, I had an S corp and I took a W2 for 100 grand or I was a sole proprietor, you know, and I had a hundred grand net income on my schedule C as an employee, you can put in 22,500. If you made 10,000 bucks on your S Corp W2 or net income on a schedule C, you can put in the max 10,000. Okay, so it's going to hit up to that limit of 22,005, but it's based on how many dollars you. And that's how the employee contribution works.

And this is the distinction that Matt made a minute ago that we should clarify or explain when he said the SEP people came to the light. The SEP people are like, oh, 401ks are better, here's why. And it's exactly what Matt just said. With a SEP, you can only put in a SEP 25% of your income, net income in a sole prop or LLC or your payroll at an S corp, 25% actually ends up being 20%. Frankly that in with a SEP contribution or through the sole prop. And so it's terrible. With a 401k, you can put in 22,5, then you can do the company match or the company contribution at different percentages and amounts and even after tax contributions. So the 20, it's like a foot race. You get a 22,500 foot head start on the seps. You really do. That's how clear it is why people drives me insane.

Old school, so much better. It's so much better. And so let me give an example here. So in the, so let's talk about. So I said the employee 22, 5, okay? As long as you make 22. 5, you can max it out. Now the employer contribution is 25%. For your, for those of you with S corps, Most popular here, 25% of your payroll, okay? Now let's say you took a 50,000 payroll, okay? You took a W2 of 50 grand. Well, you can put in 22.5- okay? That's the employee contribution plus 25% of 50 grand, which is 12,500. So I got to put in 34,500 there off of a $50,000 W2.

And let me add this, Matt everybody, that contribution can come from your draws. It can come from K1, it can come from Your grandma's inheritance, we don't care. Some of you are like, well, I got to live on the 50. Frequent aid live on the 50. This is a paper transaction. It's just paper. So. And you don't have to put the money in until next year, so don't think it's coming out of your comp every month or whatever the hell you're going to nail that 50 grand in payroll just to do the math for paper. Where you find the money to put in the 401k. We do not care. So it's so powerful that can come later.

The contribution deadline isn't until the company tax return deadline, which is next year, you know, for it's in March and if you extend, you can get up to September. Now for any of you that have S Corps, your contribution needs to be on your W2 though. So you're planning for this in January of 2024 and your W2 is done. So even though as Mark and I are saying here, you can throw the money in later, just make sure you're on the ball. Obviously if you do a consult with us in our law firm, we'll make sure you're understanding these things. But you're coordinating with your, whoever does your payroll, your payroll company or your accountant.

Yeah, and I, and I jumped into Matt's point story and let me just finish it for him because it was a great just. People start freaking out when they think my salary has got to go to the 401k. It doesn't. So I want to interject that but listen to what Matt said again. On a $50,000 salary, you're putting 35,000 away. Roth or traditional your choice or a combination with the SEP, you're putting away 12,500. See the difference? So what happens is the old school employers, they have to take a salary of over 120 grand to get 35,000 in. Where with the 401k, I can do it on 50 grand and big. And you're going to pay self employment tax on that 120 to get the money in the SEP. You're actually losing money doing the SEP. You are literally losing money to do a SEP to get the same dollars in. So that's just you freaking a people get if you're in a SEP right now in your account is telling you

how great they're understanding numbers. Let's say you had $100,000 W2, okay, 22,500. You get in this, in the solo 401K. This is the head Start Mark talk. Mark talked about plus 25% of 100,000. 25,000. So now I've got 47,500 in the Solo K off of 100kW W2. If this is a SEP25, I don't get to add in the $22,500. That's the difference.

Yeah. And there's this cool strategy. We'll just mention it now. It gets more and more technical. For those that really want to throw down, we have what's sometimes called the backdoor Roth and these after tax employee contributions. So on that $100,000 salary, as long as you have FICA income in the 80 grand to 100 grand range, you may say, hey, my spouse has other income. I just sold a rental property, we're living on that. Or I have income over here, I can let that whole salary go to 401K. Now we're talking the company contribution, your contribution, and then on top of that you can even throw down more and convert it to Roth on the day two and that now we're talking 66, 75, 80. If you're over age 55, sorry, over age 50, then the numbers even get more exponential. So when you, when you have that consult with one of the tax holders, they'll help explain what options may work for you.

Yeah, and that'd be like the after tax. We've done some stuff on this, the Mega BackDoor 401K that gets the, gets more Roth dollars on less income. So awesome little strategy there for those looking to max out, particularly if you're looking to do Roth.

Okay, what's on our agenda?

All right, so now you've got the money in. Okay, you qualified, you have the right plan set up, you've got the money in, now, you want to start investing it. Now remember I said earlier you can self trustee this. One of the cool things about the Solo 401k is you can have a bank checking account right out of the Solo 401K. A lot of our self directed investors will do what's called an IRA LLC with their self directed IRA for one reason, and there's a couple reasons, but one primary reason is they just want a checking account with it. They want to cut deals, they want to do stuff right out of the LLC bank account and not have to go back and forth with their IRA custodian. Well, in a solo 401k, you can have what's called a trustee checking account where you can sign and have a checkbook in the name of the 401k to go buy your investments and receive your income. So that's a little perk there. Now you're operating at your trustee and you have signing authority and can manage a bank checking account right out of

the solo K. Well, this is where just in summary, long story short, let me tell you a podcast, the Directed Ira Podcast. Our Directed Ira Podcast with over 100 episodes now, 100 plus five star reviews.

Great.

Get over there. Amazing hosts, amazing hosts. They're incredible, great guys. They are. They're really good. So once you have that money in there, you open up this whole new world. Just come and see. I'm going to take you on a magic carpet ride, Jasmine, and we're going to start self directing your 401k. Oh, you want to fly over Abubon or what's Akrabahn? What's that in the little obsidian? We're gonna fly over the city and see all the opportunities that you can invest in with your 401k. Our podcast over there teaches you those rules. The same rules for self directing an IRA are the same rules for a 401k. Just learn it. Matt's book is phenomenal. Get over to Amazon, the self directed IRA Handbook. If you pick one up and you come to my event, our three day event in December in Phoenix, I'll sign Matt's book for you. It could really add some value because once you read it, you're like, I gotta sell this thing so you can unload it.

Chapter on solo case, you know, Mark's signature notwithstanding, you know, but let's have an entire chapter. It's like 45 pages just on the solo K. We have so much resources on the Solo 401K. And you get a team at KQS, lawyers and at directed Iraq. That can certainly help you with it. Can I hit a couple other cool options though on the solo K? Because I just want to throw out a couple other things and just be like that are just kind of cool.

Okay, why not be cool? You're the cool kid. Throw it out. Okay.

All right. Just warning you, warning you, there's some coolness coming here. Now here's one of the unique things on a solo K that you can't do in an ira. You can loan yourself money from your own solo K. One of the most common people that set up a solo K is someone who left corporate America and went and started their own small business. They don't have any employees yet they set up a solo 401k for them not to contribute today. Not because they're wanting to contribute. They just started a small business. They don't got money to throw in. They're trying to get this business to be successful, but they want to access their existing retirement plan dollars. They're going to roll over their old employer 401k into the solo K and loan themselves money. You can loan yourself half the balance of the solo 401k not to exceed 50 grand. So if I've got a $200,000 rollover going into my solo K for my old employer for 1k, I can loan myself half the balance of that not to exceed 50. So I can loan myself 50 grand. Now I can use that 50 grand to reinvest in the business, maybe to cover some living expenses for me as this business is taking off and I'm trying to get income and get customers and all that. So you can loan yourself money. Now you got to pay it back over five years. It's at an interest rate of prime plus 2. But that interest can be expense too, right, Mark? I mean this is an interest I get expense and it goes back into my 401k. So this is a cool little strategy for people transitioning, trying to get some money for living expenses or starting a business. You, it can be an awesome tool for you too.

Love it. Can't say it any differently. Perfect. I will throw this out to another perk. If you're going to invest in real estate or even real estate syndications where they're going out and acquiring big multi unit properties with debt, you want to do that in your 401k, not a IRA. If your IRA goes and invests in a big syndication with debt, or you want to go buy a little rental property with debt and they're called non recourse loans, which is great. So you can leverage your IRA to buy with IRAs. You can still do it. People do with their IRAs. There's a tax called UDFI, unrelated debt financed income. Because you're making income financed by debt. And the IRS is like, hey, you can make money all you want on your dollar for dollar investments with your ira. But if you leverage your ira, you gotta pay tax on that leveraged portion of income. UDFI does not apply in a 401k.

Boom.

So get that money into the 401k if you're gonna do those types of syndications. And there's people. We were at a conference, Matt, what was it? It was in Maui and it was Rich and Kathy Fetke. Love them. They've been on Our show before both of them, they're just fantastic. And they're helping clients invest in real estate around the country. And single family homes. Love their website, Real wealth. And they had a syndication they did a lot of leverage with and it was great. It was making money. But they. There was clients of theirs that had used their IRA to invest in the syndication. And we're getting K1s with UDFI. And it was a blind spot for them and their investors. And it wasn't the end of the world. But there now there's syndicators out there that are saying this syndication is not good for retirement accounts. This one is. But you don't have to worry about that if you're doing it with a 401k because you don't you. If there's. So buy your own real estate. Partner up. Syndicate doesn't matter in a 401.

Yeah, yeah. And that's a UDFI tax chapter in my book on it. Self directed Handbook. Another shameless plug there. Okay, another couple of thing on the solo for 1k, there's no tax reporting on it until you have 250 grand of income. There's no tax return, I should say, for the solo 401k until you have 250,000 of assets. That up there. Thousand of assets. Once there's 150,000 of assets in solo, in the solo 401k, it's got to file a form 5500EC. Now, if you have a custodial account with directed with your solo K, we file that for you. Once you hit that threshold, there's no additional fee. It's part of the service you're getting. If you're under that, you don't have to file it. And so it's nice that you don't have to track it or file anything to the IRS with it. Now you still need to track your contributions. Right? That's your employee contributions. Go on your W2. Your employer contributions should be expense as an employer contribution on your company return in your business. So you want to be tracking those because those are tax deductions if you're doing traditional. But even if it's Roth, you've got to still track it. So. But there's no tax return again until you hit 250,000 of assets.

Yeah. Gosh, what else is cool about a 401k? Well, I think Nicki Minaj sang a song. You ain't nobody till you have a solo 401k. Or was that LLC? I guess it was LLC. So we got to get her to do a song about solo 401ks.

I'll talk to her next time we meet.

Yeah, I know you. I think you have lunch with her this week.

And I do have a Grammy award winning artist as a client. Have. And it's not. I don't know if Nicki Minaj wanted Grammy though.

I don't know.

Has she? She probably has.

Yeah. I was thinking listening.

Let's talk. You need a solo. Okay.

Yeah. There we go. And you know, I think it was a Lincoln Lawyer with Matthew McConaughey. His driver's like, hey, you ain't nobody till you've been shot. He's like, oh, see, I don't know. I think, I think you're better off rather than going out and getting shot. Just getting a solo 401k. I think it's pretty cool.

Street credit, same street cred.

Yep. Same street cred. Yeah. All right, well make sure.

I want to make sure everybody knows this. KQS lawyers. That's Mark and I's law firm. We've been helping clients for years, for over a decade on solo 401ks. We have an amazing team that help get us set up. Make sure you're acting now. We've got a special going on for the next few weeks. Okay. Get in now and go to kkoslawyers.com it's going to be right there on the homepage. Work with our team. You can get it scheduled. Work with an attorney if you want or if you want to go docs only you feel like you know what you're doing. You, you have that option too. But get in right now. Do not wait until December. Do not put this off. Okay. Act now. Get it set up so you're gonna be eligible for 20, 23 contributions. And just to get the discount.

Yeah. And I'm gonna throw this out too. Book your year end tax review. It's a consultation where you'll get a trifecta and a real tax lawyer will give you a second opinion on everything your accountant's been doing. We're not trying to sit. We don't do tax returns at law firm. We have our tax pro network. If you're looking for an accountant, we ho ho, we got an Incredible Network. MarkJ Kohler.com, go up to the tax pro network and all of my tax pros there have been trained on this.

But

just get that year end consult and it'll. I know it'll save you thousands. One last plug. Let me if I may. Our three day event. November 30th, December 1st and 2nd. Three days in Phoenix. Who does not want to be in Phoenix in December? And we've got a room block for 150 bucks a night at the Hilton Point Cliff, whatever that's called. North Phoenix, beautiful resort. And the Hampton Inn is more expensive down the road. So this resort, we have the room block for just another week or two. I think it's November 6th and it's a three day event. We're throwing a party Friday night, Denim and diamonds with line dancing. We've got 30 classes, 15 instructors, five main stage events, networking, lunches. The ticket for a general admin, 500 bucks. 500 bucks to come in person. You want to do virtual? I think it's 400 bucks. We have a premium ticket that includes lunch and a few other things but please check it out. Go to tax and legal360.com tax and legal360.com There'll be a class on 401Ks there. Matt will be teaching a class on self directing. We've got classes on the S Corp. Every strategy that Main Street American business owners should know is going to be there. So you'll, you'll love it. Get over there. Tax and legal 360.

All right everyone, thanks for tuning in for this special episode highlighting the Solo 401K. Like I said, the number one retirement account strategy for self employed people. You've got to know this solo 401k. And most of you that are self employed, you need to be using this to build wealth.

Be back.