This week’s AskPB was submitted on Twitter. You can view all our AskPB responses by clicking here. Lawrence Gonzalez is an accountant who developed his own personal finance system that allowed him to pay off over $116,000 in debt in 4 years. Like many of our personal finance spotlights, there is another question that quickly arises once you get your money right. What are the next financial moves I should make on my journey to financial freedom?
What is a Self-Directed IRA?
A self-directed individual retirement account (SDIRA) is a type of individual retirement account (IRA) that can hold a variety of alternative investments normally prohibited from regular IRAs. – Investopedia
We briefly spoke about the benefits of a SEP IRA with radio personality and self-employed contractor Angela Yee on Color Full Lives. Color Full Lives is hosted by Angela (@angelayee of The Breakfast Club) and Aminatou Sow (@aminatou of Call Your Girlfriend). The hosts have candid conversations on personal finance and more to empower women of color to up their financial IQs, lives, business and careers.
Prior to the episode, Angela had consulted with a financial expert to gain an understanding of the benefits of a SEP IRA, especially for individuals with fluctuating income streams or various employers. She learned that a SEP IRA is one vehicle that can help her save for a secure retirement even when a non-traditional salary might vary from month-to-month or year-to-year.
Entrepreneurs and Contractors Can Benefit from a Solo or Self Directed IRA
This National Financial Planning Month we’re working with subject matter experts and Certified Financial Planners to answer our listeners financial questions. This week, we reached out to former guest, Barbara Ginty (Paychecks & Financial Planning ft. Barbara Ginty). Barbara is a Certified Financial Planner (CFP) and owner of Planacial, a one-stop-shop for online personal finance classes and podcasts. Here is our listener’s AskPB question:
How Does a Solo 401k Work?
Barbara explains: While the overarching 415(c) contribution limit for defined contribution retirement plans is $56,000 for 2019. It looks better than it is!
You can’t just plop $56,000 into that account and avoid taxes. That is the total dollars allowed in the type of plan (this is also the same for 401ks-for you corp folks and then a SEP IRA as well). If you use one of these solo 401k’s you are both the employEE and the employER.
The employEE is eligible to put in $19,000 (and if over 50 you can do an additional $6,000) and the employER can put in 25% of your compensation OR of your net self-employment income. The 2019 limit on the income that can be used is $290,000. With a self-directed 401(K) or even an IRA or Roth IRA you can absolutely own real estate! It is very important that you seek the advice of either an accounting or law firm that specializes in self-directed vehicles!
Get Our Newsletter!
Join our free email community to get our newsletter with actionable tips and interesting reads to help you navigate your finances and career.