Self-Directed Retirement Plans

Plan Types

Individual Retirement Accounts

Traditional IRA

A Traditional IRA is a way to save for retirement by deferring any tax to a later date. Depending on your circumstances, the contributions that you make to a Traditional IRA may be fully or partially deductible. Usually, the assets in your Traditional IRA are not taxed until they are distributed from your IRA. When you turn 70½ years old you are required to begin taking minimum distributions from the plan.


Roth IRA

A Roth IRA allows you to save for retirement by making after tax contributions to the plan and allows for tax-free growth. This means that you cannot deduct contributions made to a Roth IRA. It also means that you are allowed to take qualified tax-free distributions from the plan as long as you satisfy certain requirements. One great advantage of a Roth IRA is that there is no requirement to take required minimum distributions from the plan. This means that you can leave the assets in your Roth IRA as long as you live!


SEP IRA (Simplified Employee Pension Plan)

A SEP IRA is a plan that works for any size of business. Even self-employed people can establish a SEP. SEP plans can provide a significant source of income at retirement by allowing employers to set aside money in retirement accounts for themselves and for their employees. A SEP does not have the start-up and operating costs of a conventional retirement plan and allows for the employer to contribute up to 25 percent of each employee’s pay into the plan.

When operating a SEP, the employer is not required to make contributions to the plan, but if they do they must contribute equally for all eligible employees.  All contributions to a SEP are 100% vested, and are tax-deferred. This means that the employee can move or invest the funds in their SEP however they wish, and that tax is deferred until the employee takes the assets out of the plan through a distribution.


Simple IRA (Savings Incentive Match Plan for Employees)

A Simple IRA plan makes is possible for small businesses to provide a low-cost retirement plan for their employees.  Simple IRAs can provide a significant source of income at retirement by allowing both employers and employees to set aside money into the plan. A Simple IRA is available to any small business with 100 or fewer employees.

In A Simple IRA the employer is required to contribute each year either a matching contribution up to 3% of compensation, or a 2% non-elective contribution for each eligible employee. Under the “non-elective” contribution formula, even if an eligible employee doesn’t contribute to their Simple IRA, that employee must still receive an employer contribution to their account equal to 2% of their compensation up to the annual income limit. In a Simple IRA employees may also contribute to the plan, and the employee is always 100% vested.


Employer Sponsored Plans

The Owner’s Only 401(K) Plan

In retirement circles the Owner’s (K) plan is also referred to as a Solo (K), or Individual (K).

The Owner’s (K) plan isn’t a new type of 401(k) plan. It is a traditional 401(k) plan covering a business owner with no employees, or that person and his or her spouse. These plans have the same rules and requirements as any other 401(k) plan.

The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both elective deferrals up to 100% of compensation up to the annual contribution limit, and Employer non-elective contributions up to 25% of compensation as defined by the plan. Designated Roth contributions are allowed in the plan.

A business owner with no common-law employees does not need to perform nondiscrimination testing for the plan, since there are no employees who could have received disparate benefits.

The no-testing advantage as well as the qualified use of the Owner’s (K) plan vanishes if the employer hires employees.  No matter what the 401(k) plan is called by a plan provider, it must meet the rules of the Internal Revenue Code. If you hire employees and they meet the plan eligibility requirements, you must include them in the plan and their elective deferrals will be subject to nondiscrimination testing.

An Owner’s (K) plan is generally required to file an annual report on IRS Form 5500 if it has $250,000 or more in assets at the end of the year. A one-participant plan with fewer assets may be exempt from the annual filing requirement.

The Owner’s (K) plan does not limit your investment options. You are free to self-direct your plan assets into any permissible asset as defined in the plan document. Common investments held in the Owner’s (K) Plan include real estate, secured and unsecured notes, private placements, stocks, bonds, and mutual funds. The Owner’s (K) plan is a great choice for self-employed medical professionals, finance professionals, and real estate agents.

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