real estate investing

Solo 401k

The end of the year is approaching and many investors are reconsidering their finance and taxes for 2014. Many of us are considering different approaches to save on taxes. For those who are self-employed, setting up a Solo 401k can present a great tax-saving solution.

Investors are looking at a Solo 401k plan for many tax-saving benefits. First, like other traditional retirement plans, the Solo 401k offers tax deferrals for all contributions and investment earnings within the plan. This means account holders will not have to pay taxes on their retirement account until the time of distribution. Contributions and expenses to set up a Solo 401k are also tax-deductible to the business or to the personal income of the year.

In order to contribute to a Solo 401k plan in 2014 and enjoy these tax benefits starting this year, however, investors have to set up their plan before December 31. All plans that are set up before this Solo 401k deadline will qualify to receive contribution for this year.

Many assume that it is too late now to take advantage of the tax-benefits for 2014, but it is not true. The plan itself has to be set up before December 31, but the contribution deadline can be later than you expected.

The contribution deadline of the Solo 401k plan varies depending on the type of businesses. Generally, investors only need to contribute their salary deferral portion before the end of the year. The profit sharing contribution can be made up until the tax-filing deadline, which varies depending on the business types and tax-filing status.

A single member LLC or a sole proprietorship, for example, can make profit sharing contribution up until April 15, 2015.

To determine the exact deadline for your type of business, visit this page for more details.

Besides the many tax benefits that it offers, a Solo 401k plan also offers certain benefits to real estate investors. First, it allows investments in real estate, among other non-traditional investment options. Investors can now choose to invest their funds in properties, trust deeds, or real estate notes.

The plan also offers checkbook control and does not require a custodian. As an experienced real estate investor, you can now take control of your investment decisions and forgo any custodial fees. Better yet, the use of non-recourse financing is allowed with no penalty or taxes. With a self-directed IRA, the use of non-recourse financing will trigger unrelated business income tax (UBIT). This tax does not apply to a Solo 401k, however. That means real estate investors can choose to use leverage if they wish.

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