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Solo 401k Advantages

A Solo 401k is a retirement savings plan designed for self-employed individuals. Our Solo 401k plan possesses most of the characteristics of the Self Directed IRA LLC, including checkbook control, direct asset possession, and nearly unlimited investment options but without a custodian or the need to establish an LLC. It’s the most tax-advantaged, self-employed plan available with very high annual contribution limits. You can set up this plan even if you’re employed at a full-time job. And, you can borrow funds from the account. This is a qualified plan for those who own or run a business that has no full time employees other than a spouse.

Longboat has made setting up your Solo 401k retirement plan easy!

3 Simple Steps

  • STEP 1: Solo 401k documents are produced by Longboat and delivered to you.
  • STEP 2: You establish a local bank account to receive existing funds or contributions.
  • STEP 3: As Trustee, you determine best investment options and execute transactions.

Self Trustee

With a Solo 401k, you act as your own Trustee and are charged with investing trust assets prudently and productively. The Trustee cannot co-mingle personal funds with the trust and cannot enter into a transaction with the trust.


You can rollover funds from Traditional IRAs, SEP Plans, previous employer 401k plans, Money Purchase plans, Profit Sharing plans, Keogh plans, Defined Benefit plans, 403(b) plans and Rollover IRAs to initially fund your Solo 401k. You do this by setting up a Trust account for the Solo 401k and directly transferring the funds from the Custodian to the trust bank account.

Making Contributions

For the salary deferral portion in 2011, you can contribute the regular 401k maximum of $16,500 (with an additional $5,500 if over the age of 50 at year end). And, you can add up to 25% of compensation for the profit-sharing portion. The combined maximum of these contributions cant exceed $49,000, plus catch-up additions, if applicable. You can also set up a designated Roth component if you desire.

Taking Out A Loan

Our Solo 401k plan document has a loan provision enabling you to take out a loan from your 401k. You can borrow up to 50% of the total 401k value up to a maximum of $50,000, tax free. Repayment of the loan is according to a loan amortization schedule created when the loan is initiated and must be paid back into the account (including interest). It is a simple process with no cost to you using Longboat software to create the loan documents. Failure to make the loan payments may cause a loan default causing taxes and IRS penalties.

A Solo 401k is Not Subject to UDFI Tax

Income to an IRA associated with the financed portion of a property purchased using a non-recourse loan is subject to the Unrelated Debt Financed Income (UDFI) tax. UDFI is a type of unrelated business taxable income. Solo 401k plans are exempt from this tax.

Solo 401k Eligibility Requires 2 Things:

  • Presence of Self Employment Activity – This can be as a sole proprietor or more formally organized as a Corporation, Partnership, or LLC. It’s okay to also be employed elsewhere even if that is your full time job and you participate in a 401k there.
  • Absence of Full Time Employees – To meet this requirement you cannot have full time employees at a business that you own. Part time employees (those who work under 1000 hours per year) and independent contractors (those who receive a 1099 rather than a W-2 at the end of the year) are okay to employ.

Borrowing Money From Your Solo 401k

Solo 401k’s most touted feature is its uniquely large annual contribution limits ($49k – $108k). A lesser-known feature may be just as useful for some: participant loans.

What is a Participant Loan?

A Solo 401k participant can borrow up to either $50,000 or 50% of their account value with the following terms:

  • To be repaid over an amortization schedule of 5 years or less
  • Regular payments no less frequently than quarterly
  • At a reasonable rate of interest... generally interpreted as prime rate + 1%

Such a loan may only be made in accordance with the Solo 401(k) plan documents. While most plan documents disallow this type of loan, the Longboat Retirement Solutions Solo 401k plan enables you to take a participant loan.

Under What Conditions is This Allowed?

Any. As long as the plan documents allow for it & the proper loan documents are prepared and executed, a participant loan can be made for any reason.

When is This Useful?

There are many common uses for a Solo 401k participant loan. If a person wants to make a sub $50k investment that would otherwise be a prohibited transaction, they can just borrow the money and do the investment as an individual. A person could use a participant loan to cover an unanticipated emergency cash shortfall.

Our Solo 401k Establishment Services Include:

  • Adoption Agreement
  • Basic Plan Document
  • EGTRRA Amendment
  • Summary Plan Description
  • Trust Agreement
  • Appointment of Trustee
  • Action by Board of Directors
  • Beneficiary Designation
  • Loan Procedure
  • Election Not To Participate
  • Up to 5 Transfer Request Forms for incoming funds transfers
  • Assistance creating an EIN with the IRS
  • IRS Determination letter stating that this is a Prototype Plan that meets the requirements of a qualified plan.
  • Banker/Broker Instruction Letters to make the opening of trust accounts simple and easy

We will also assist you in opening your bank trust account(s) and executing your incoming transfers from existing funds. Thus far, our customers have had a 100% success ratio in opening their trust accounts and completing their transfers.

Call Longboat at (406) 551-4775 For a Free Consultation...