Are there advantages of a self-directed Solo 401(k) over other types of small business retirement plans?
Yes. A self directed Solo 401(k) plan has additional allowable investment options. Investments in life insurance contracts and S-corporations are permitted. In addition, profits on leveraged real estate investments are not subject to Unrelated Debt Financed Income Tax (UDFI). This is a significant benefit to account owners who wish to invest their retirement funds in real estate.
Another advantage is the self directed 401(k) loan provision. The account owner can borrow up to $50,000 or ½ the plan’s account balance. The loan can be used for any purpose and is tax-free and penalty free as long as it is paid back on time.