401k IRA Comparison Summary

When is a 401(k) more appropriate for your retirement investing? Check out the comparison chart below to see which one is best for your unique needs.

Features Solo 401K SDIRA Additional Details
Creditor protection yes yes In most instances protection is available and state laws should be reviewed
Tax free (Roth Account) available yes yes Solo 401k has larger contributions and no income limitations.
Tax Deferred account available yes yes
Check book control capability yes yes The IRA needs to establish another entity such as an LLC or trust. Continuous funding for the IRA new entity (LLC/Trust/etc.) is potentially a prohibited transaction.
Custodian/or Administrator required per IRC 408 no yes IRA requires a custodian /trustee-401k business owner can be trustee.
Administrative fees yes yes Solo 401k is usually more costly however there are measures where cost can be minimized with the business owner controlling the process directly. Basically a “Do Your Own” model.
Able to purchase alternative investments yes yes Real estate, notes, precious metals, private placements, etc.
Invest in Life insurance yes no
Self Employment required yes no
Personal loan available yes no $50k or 50% of account balance whichever is less.
RMD for Pre Tax after 70.5 years of age yes no 401k could transfer to a Roth IRA and do away with the RMD.
Fair market value reporting to IRS IRS form 5500 IRS form 5498 Form 5500 can be completed by the business owner, CPA, or third party plan administrator but it is the responsibility of the business owner. The 5498 form is done by the custodian.
Report distributions to IRS on form 1099 R 1099 R Solo 401k will also use form 5500
Federal tax withheld on distributions yes no IRA has the option to determine if any, what amount of tax to withhold; 401ks usually have mandatory 20% withheld.
Prohibited Transaction rules apply yes yes Reference Section IRC 4975
Unrelated Business Taxable Income rules apply yes yes Reference IRS form 990T and Instructions
Unrelated Debt Financed Income no yes UDFI does not apply in most cases with a 401k. However it will most likely be triggered with an IRA that borrows non-recourse funds.
Contribution limits yes yes Solo 401k allows salary deferral and company profit sharing. IRAs have business and personal accounts with different limits for each type of IRA. See CamaPlan page for more details.
Tax on early Post tax contributions distribution yes no 401ks require earnings be to withdrawn with post tax contributions proportionately resulting in a taxable event. Roth IRA distribution rules allow for early withdrawal of contributions anytime without taxation.