| ly, the SD IRA and 401(k), in some minds, are very | | | | topic, but you want to. The rules are there to protect |
| similar. They are both tax-free or tax-deferred "trust" | | | | you. These are YOUR retirement assets, not |
| accounts for the benefit of one's retirement assets. | | | | monopoly money. |
| Like any other employer-sponsored retirement plan | | | | But in my case, I took a loan out and set myself up |
| (e.g., 401(k), 403(b), 457(b)), they are designed to | | | | with a 5 year ammortized loan at 7% interest. I make |
| provide, in a tax-friendly environment, the contribution | | | | quarterly payments of principal and interest. Oh, I forgot |
| towards and growth of such assets prior to an | | | | to ask....who am I repaying with a fair amount of |
| individual's distribution of these funds. | | | | interest? Oh, you are right...it's me. My payments go |
| So what is the basic difference? | | | | right back into my retirement account. |
| If an individual or their spouse earn income through | | | | Now, remember, you have to meet the requirement of |
| self-employment, as a sole proprietor, partnership, LLC, | | | | a true self-employed individual to create a SD 401(k) |
| corporation or as an independent contractor without | | | | but, if you do, why wouldn't you want this type of |
| any employees, then the individual is eligible to this | | | | account. It doesn't mean the SD IRA is bad, just |
| option. But, all things being considered, why would | | | | different. |
| somebody want a SD 401(k)? I mean, don't they follow | | | | Plus, as nationally recognized tax expert Tim |
| the same rules as a SD IRA? | | | | Berrysays, "If you conduct a prohibited transaction |
| In short, no. There are two primary distinctions | | | | your IRA blows up." In layman's terms that means if |
| between the two: | | | | you enter into a prohibited transaction, your IRA blows |
| 1) For the 2008 tax year, IRA contributions are limited | | | | up :) But seriously, within an 401(k) if you enter into a |
| to $5,000 (under the age of 50/$6,000 over the age of | | | | prohibited transaction, you may be able to satisfactorily |
| 50) where in contrast to this 401(k) contributions have | | | | resolve the issue -- however, within your IRA if you do |
| limits of $15,500/$20,500 respectively. What SOUNDS | | | | that same transaction, the IRS (generally) will deem |
| and IS better? Neither of these also takes into account | | | | your plan to be fully distributed and subject to |
| what you can do if your spouse is an officer of your | | | | significant taxation and penalties. Review my next blog |
| company or works with you and the respective | | | | posting of identified prohibited transactions on Fulcrum |
| contribution levels. For more information, contact PGI | | | | investment Network ....remember, though, I am not your |
| SelfDirected. | | | | cpa or tax attorney. |
| 2) Loan Provisions -- Contact PGI SelfDirected for | | | | So, remember, if you self-direct and utilize a plan |
| more information related to what loan provisions | | | | facilitator, make sure that they can assist you with |
| individuals are eligible for through their SD 401(k). | | | | both self-directed status with either an IRA or a 401(k) |
| However, I took out a loan from my account. I am | | | | option. And, as always, do your due diligence on |
| investing in myself.....is this good or bad?! I think it is | | | | everyone. |
| good. You do need to follow IRS regulations on this | | | | |