how EXACTLY does a Solo 401k differ from a self-directed IRA?

[Rick D.]

Does anyone know where I can find a definitive guide on self-directed IRAs vs Solo 401ks. I mean something that goes beyond the superficial and tells me step-by-step EXACTLY what they are and EXACTLY how they differ and EXACTLY what they typically cost to setup and administer? I've listened to a dozen podcasts on this topic and no one ever goes into a satisfactory level of detail.

[Dmitriy Fomichenko]

Rick, a Self-directed IRA is an Individual Retirement Account (any individual with earned income or funds to rollover can have one). Solo 401k on the other hand is considered "employed sponsored plan" and is not for everyone. 

The place to start would be to determine if you are eligible for a truly self-directed Solo 401k. The eligibility requirements are two-fold:

    1) Presence of self-employment activity (or business with earned income), and  

    2) Absence of full time employees.

If you are eligible then most likely you'll want to go with this option rather than SD IRA because it has several major advantages over IRA such as:

- Custodian is not required

- Checkbook control over your retirement funds without use of the LLC

- No transaction fees

- No UBIT on leveraged real estate

- Better protection for creditors

- Ability to correct a prohibited transaction

- Ability to access your retirement funds personally up to $50K via participant loan feature

- Tax free investing using Roth sub-account

- Contributions limits are nearly 10 times higher ($60K vs $6,500)

I do have a resource I can share with you offline that can help you gain better understanding on the subject.