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Self-Directed IRA vs Self-Directed 401k

The Self-Directed 401k plan has many advantages over a Self Directed IRA. Some of the benefits of the 401k is the ability to make larger contributions, borrow against your savings, invest in leveraged real estate deals, and have the option of a company match deal. Many people may want to use the benefits of both an IRA LLC and a 401k to accomplish their different investment objectives.


Self-Directed IRA

Tax Benefits

All earnings & profits within the account remain tax-deferred until you make withdrawals from the account. Tax deductions are available to most- some restrictions apply.

Who's Eligible

Anyone under age 70 1/2 and has earned income.

Contribution Limits

$4000 per year for age 49 or below
$5000 per year for 50+
Married couples can contribute a total of $10,000


They can begin at age 59 1/2 and must start by 70 1/2 There are exceptions for early distributions which include first time home buyer fees, and educational & medical expenses. There is also a way to start early distributions, but you have to take an equal amount every year until 59 or five years. Ask for details.

Rollover Options

Depending on your income level, you can convert your IRA to a Roth IRA if you pay taxes on the amount you rollover.

Finally, there is a little caveat -- in the year 2010, you can roll over traditional IRA into a Roth IRA regardless of what your income level is, and pay taxes on the amount you roll over, so you can then grow the rest tax free after that.

Self-Directed 401k

Tax Benefits

Contributions are tax deferred. Tax deductions do not apply. Exception: You can take a tax deduction for the year your employer makes a contribution.


Available to anyone with earned income.
Limitation: You cannot open a 401k for a spouse as a spousal 401k, but you can an IRA, if you are contributing funds from earned income. For a 401k, the spouse has to earn their own money and open their own 401k.

Income Limit

Income limitations do not apply. You can make a million bucks and still contribute to a 401k and even a Roth 401k.

Contribution Limits

$15,500 per year for under 50
$20,500 per year for 50 and over

For 2008, the employee and the employer can contribute a combined amount of $46,000 per year. This number must be less than 100% of the employee's salary. And depending on how you set up your business, you can be your own employer.


Can begin at age 59 1/2 or earlier if owner becomes disabled. Must start withdrawing funds at age 70 1/2 unless employee is still employed.

Distributions from a 401(k) plan are more restricted than with an IRA. Distributions of pre-tax contributions are taxed to the participant unless they are properly rolled over into another qualified plan or an IRA.


Some 401k plans will allow you to take a loan against your savings. In some cases you can borrow up to 50% of the savings.

Rollover Options

When you leave your place of employment, your 401k can be rolled to an IRA or Roth IRA. Keep in mind, if you decide to rollover your 401k into a Roth IRA you will need to pay taxes on the amount you rollover.