Investing Your 401(K) Outside the Stock Market

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A lot of investors are not happy with their 401(k) stock investments, and are looking at alternatives.

A lot of baby boomers are losing confidence in being able to earn enough from their 401(k) stock investments to live comfortably, observes Lamaute Capital Inc. (, retirement investment specialists.

A typical comment we get, says Daniel Lamaute head of Lamaute Capital, goes like this: “When I left my job, four years ago there was $75,000 in my 401(k). I then rolled over to an IRA, now I still have $75,000. I would like to open a self-employed 401(k), move my rollover IRA to the new account and borrow from it to invest in my business.”

Whether you want to tap your 401(k) to invest in your business, buy real estate, or get rid of your high-interest debt, these are the qualifications and steps needed to get a loan from a Self-employed 401(k).

You must have a business in order to open a Self-employed 401(k) or Solo 401(k).

It doesn’t matter if you started your business last week or several years ago, as long as your business has no employees, or your spouse is your only employee, than most likely you can establish a Solo-401(k) plan.

The Solo 401(k) is available to any form of business including C corporations, S corporations, partnerships, and sole proprietors working part-time or full-time in their business. This includes independent contractors and freelancers with 1099 income. A Solo 401(k) is not suitable for you, however, if in the next couple of years you plan to hire employees that will work more than 1,000 hours per year.

Once you have set up your Solo 401(k) there is no limit on how much you can transfer/rollover tax-free from your other retirement plans or IRAs into your Solo 401(k). In general, only pretax contributions can be rolled over into a Solo 401(k). You have to quit your job before you can rollover your current employer’s 401(k) to your own Solo 401(k).

As soon as 15 days after the funds are in your Solo 401(k) you can borrow up to a maximum of $50,000, but in no case more than 50 percent of the balance that is in your Solo 401(k) account.

A loan from a Solo 401(k) is easy to obtain because you are in effect taking money out of your account. In many cases the interest rate is fixed at prime rate for the five year term of the loan. The loan payments, interest and principal, go back in your 401(k) account.

You can use your 401(k) loan for any purpose. By taking a loan instead of a distribution you can avoid the tax penalties generally associated with early withdrawals. However, if the loan is not paid back on schedule, the balance in default will be subject to taxes and a possible 10% early withdrawal tax penalty.

When investing for retirement it is wise to hold a diversified portfolio and to manage your investments for the long haul. Some small business owners see taking a loan from their 401(k) as a method to diversify their portfolio beyond what is available to them in their 401(k). But before rushing to take a loan from your 401(k) to start a business, beware that roughly half of all new businesses fail within their first five years of existence.

For more information about self-employed retirement plans visit

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D Lamaute
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