SEP-IRA > SDIRA / Solo401K for balances below $100,000

[Basit Siddiqi]

Hello all,

I just wanted to share my recent decision of a retirement account to set up for my self and the reason why.

A little about me
I currently have $0 in traditional retirement accounts(IRA, 401K, etc). I took an early distribution a couple of years ago and put 100% of it into real estate. The 10% penalty I paid was covered by the increase in real estate appreciation, no regrets.

However, now I am looking to shelter some of my earned income(CPA practice) by putting it away into a retirement account.

I researched various retirement accounts(SEP-IRA, Solo-401K, SDIRA) and I decided to go with the SEP-IRA.
Below are some of my reasons.

SEP-IRA Benefits
1) Ease of formation and no cost to setup. I created my SEP-IRA with Charles Schwab in 5 minutes
2) Ability to put away up to $61,000 in 2022

SEP-IRA Cons
1) Meant for Small businesses
2) No Roth Feature
3) No Loan Feature
4) Can't invest in exotic assets(Real Estate, Syndications, Crypto)

I like the benefits offered by SDIRA / Solo401K but I realized that I will not benefit as much since I have $0 currently in my retirement account and $0 eligible to be rolled over.

Some 

Why I think having a balance of below $100,000 does not make having a solo401k or SDIRA worth it.

Investing in syndications / real estate with a below $100,000 account balance is very difficult.
Syndications, normally at a minimum, require $50,000 capital contributions.
Buying Real Estate within a retirement account can be risky if you don't have enough funds in the retirement account to account for reserves.
You can't use your own funds to help a struggling property held within a retirement account. 

You can still make a SDIRA / Solo401K work with below a $100,000 balance but I don't think its worth the fees / extra hassles

SDIRA / Solo 401K's have fees to set-up + Annual Fees
My research shows that
Setup Fees Range from $500 - $2,000
Annual Fees from $100 - $1,000

The Fees can eat away from your retirement earnings making it not worth it.
Example - Solo401K with a $50,000 account balance that makes 10% which is $5,000. That person can lose $1,000 of it which ends up to $4,000 which gives it a 8% return

There is the added headaches also involved when investing through a SDIRA / Solo401k because you normally need an LLC(to get check-book control).

Why did I pick $100,000 as my benchmark and why I plan to switch to SDIRA / Solo 401K after $100,000.
At $100,000, I plan to open up a Solo401K to use the loan feature and take out $50,000 as a loan.
Solo401K(dependent on sponsor) allows for 401K Loan up to $50,000 or 50% of your loan balance, whichever is less.
I would use the rest of the balance in the solo401k to invest in syndications + issue hard money loans.

One reason I thought to create this post was because I see how often SDIRA / Solo401K are mentioned but how little SEP IRA is recommended. SEP-IRA is free to setup and should also be considered.

What are your thoughts?