Problem: As an American employee, my 401k can only be invested in traditional assets (i.e. stocks and funds). However, many people would like to invest it into alternative assets like real estate, precious metals, and private company shares (venture capital) while also avoiding long-term tax implications.
Solution: Creating a business that allows people to invest in anything they want using their 401k. This seems possible through a Solo 401k.
The Solo 401k is one of the most interesting American tax laws I discovered during this 2019 tax season. It’s also known as the one-participant 401k plan (this website gives a very clear description). The plan is essentially the same as a Traditional 401k, except it only covers one person. Moreover, it allows you to make annual contributions as an employee and employer, which increases your yearly maximum contribution limit. It became popular when the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) was passed.
The benefit of this 401k plan is that it allows you to invest in nearly anything you want including venture capital, real estate, loans, cryptocurrency, and more. The catch, however, is that you first must qualify for a Solo 401k by being self-employed in a business that does not have any full-time employees (aside from yourself). The Solo 401k can be adopted by any entity type such as a Corporation, LLC, Partnership, or Sole Proprietorship.
It’s a little-known fact that you can actually have more than one 401k plan at a time. For example, while being employed by your full-time employer with one of their 401k plans, you can also have a Solo 401k. Of course, there are nuances to overcome.
Thus, the business would focus on helping individuals to set up corporations and Solo 401k accounts to minimize their tax burden in the long-term while investing in alternative asset classes. The goal would be to do this legally by connecting clients to paid opportunities that allow them to maximize their Solo 401k contributions and invest with more favorable long-term tax implications.
Monetization: Fee to set up these types of accounts for clients.
Contributed by: Michael Bervell (Billion Dollar Startup Ideas)