by Richard Hammarstrom, Waterford Financial Group
The IRA vs. the Personal 401(k)
Surprisingly, the 401(k) is not limited only to large corporations. Since 2001, a personal 401(k) has been available to individuals (sole proprietors, LLCs, small corporations) where there are no employees other than a spouse. In almost all categories, the features of the 401(k) top that of the IRA.
Investing in real estate: You can invest in real estate (houses, condos, land, commercial, etc.) in either an IRA or a personal 401(k). Unlike the IRA, leveraged real estate profits in your 401(k) are not subject to current taxation. Important note: you cannot personally occupy the property.
Annual Maximum Contributions (2009): IRA $6,000 401(k) $51,500
Minimum Contribution: Neither plan has a minimum annual contribution. This allows you to reduce or eliminate contributions in an off year and increase them in a good income year – particularly in your 401(k).
Roth Feature: The Roth 401(k) can be structured to allow both pre-tax as well as Roth contributions within the same plan. Remember, Roth distributions can be tax-free!
Asset Protection: Unlike the traditional IRA, your 401(k) can protect you from predatory creditors and lawsuits.
Cash Availability: Unlike the IRA, you can borrow (up to $50,000) from your 401(k) (and pay interest to yourself!) Withdrawing funds from an IRA can be very expensive.
Participant Qualification: Unlike the Roth IRA, the 401(k) has no personal income ceiling to limit participation
Next time: Checkbook control – Yes, you can be in charge!
May be re-printed with permission. Waterford Financial Group, LLC, offers a personalized Roth 401(k) pension plan, with checkbook control. They can be reached at 800/327-8800 or securelyretired@aol.com Note: this column provides general information only. Laws vary from one state to another. For advice on a specific matter, consult your attorney or CPA.
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