As an investor, choosing the right vehicle for your real estate investments is crucial. Two popular options are the Solo 401(k) and the Self-Directed IRA (SDIRA). Each has its advantages, so understanding the differences can help you make the best choice for your circumstances.

Key Comparison Points

Contribution Limits

• Solo 401(k): Offers higher contribution limits—up to $66,000 in 2025, plus catch-up contributions if you’re over 50.

• SDIRA: Typically allows a maximum contribution of $6,500 (or $7,500 if over 50) for the year, making it less ideal for larger investments.

Investment Flexibility

• Solo 401(k): Provides a broader range of investment options, including real estate, stocks, bonds, and even borrowing capabilities.

• SDIRA: Offers flexibility but limits you to investing only in certain types of assets, often involving more administrative oversight.

Tax Benefits

• Solo 401(k): Contributions can be made pre-tax, and you benefit from tax-deferred growth on your investments.

• SDIRA: Typically features tax-deferred growth, but if set up as a Roth IRA, you can enjoy tax-free withdrawals in retirement.

Which One is Right for You?

Choosing between a Solo 401(k) and an SDIRA largely depends on your investment goals and strategy. If you plan to make larger contributions and leverage investments such as real estate, a Solo 401(k) may be the better option. However, if you’re looking for more general investment options and want to start with a smaller amount, an SDIRA could be suitable.

Conclusion

Ultimately, the choice between a Solo 401(k) and a Self-Directed IRA hinges on your specific investment goals and financial situation. Both options offer unique benefits, but recognizing what aligns best with your investment strategy can pave the way for your success in real estate.

Get expert insights at our live webinar on February 27 – homeinvest.com/401k