Quote from @Daniel M.:
@Basit Siddiqi, based on your experience, would you do it again?
@Brett Synicky, Thank you for the suggestion! SDIRA and Solo 401(k) sound like interesting options for investing in real estate through my retirement accounts. I’ll check out both articles you shared.
How do Solo 401(k) and SDIRA benefit W2 individuals in terms of contribution limits, investment flexibility, and tax advantages, particularly with features like checkbook control and Roth contributions? What are the advantages for investors looking to diversify into alternative assets like real estate, and how does it compare to traditional IRAs regarding custodian requirements and tax benefits?
SDIRA contribution limits are the same as any IRA, $7k or $8k over 50, annually. No impact whatsoever on w-2. Roth IRA/SDIRA has income limitations, you can check IRS/CPA for current guidelines on that.
Solo 401(k) may work if you're self employed and have no full time employees other than you/spouse or even if you're in a partnership situation. The impact on w-2 happens if you're contributing to an employee sponsored 401k plan with that employer. There are 2 hats you wear when self employed. Employee and Employer (business owner). As an "employee" with a solo 401k you can contribute up to 100% of your S/E earnings up to $23k/$30,500 over 50). You cannot double dip on the employee contribution. For ex you're putting $10k in at your employer then you could only put in an additional $13k into your Solo 401K. Additionally you can contribute 20-25% depending on the situation of what you pay yourself or the gp of the company which is commonly called profit sharing, which you don't have at your w-2 job and your w-2 job has no impact on this. The total cannot exceed $69k or $76,500 over 50.
You can invest in anything except the following: Life insurance (SDIRA only) and for both collectables and disqualified parties/prohibited transactions.
Not all providers will offer checkbook control as an option in which case you'll need to go through the custodian for all transactions.
Regarding your tax benefits question, certainly something to discuss with your tax advisor, but here's a few thoughts. Employee contribution can be done as Roth or traditional or combo. Employer profit sharing contribution is pre-tax and a business expense for the business. You can do a Roth conversion if you'd like.
From an investment perspective, there's nothing wrong with the stock market but if you invest properly into real estate or even private lending in your retirement account you can get a much higher return than 8%. There are no taxes to worry about until distribution (pre-tax) and no taxes at all on the gains in the Roth. You can get a non-recourse loan and leverage your funds to buy 2 rentals instead of 1. Last I checked nobody will loan you money to invest in the S&P 500.
There's more to this but that's a lot, hope it all makes sense.
