While a Solo 401k may invest in promissory notes, whether secured or unsecured, as the Sol 401k trustee you, not the Solo 401k provider, are required to protect the assets of the Solo 401k plan which includes making investments that are intended to not only benefit the Solo 401k plan but also not put the plan in an unfavorable position.
As such, take
the following steps before investing your Solo 401k plan in promissory notes to
help prevent fraud against your Solo 401k plan.
- If the promissory note is to an individual, have the individual provide a credit history report.
- If the loan is to a company, make sure it’s not a shell company by reviewing the company’s financials and verifying that the company is registered.
- If the promissory note investment is secured by real estate, have the borrower provide an appraisal for the property obtain a deed of trust that is recorded in the name of the Solo 401k, and obtain a title insurance policy to confirm correct title priority (i.e., that the Solo 401k is listed in first position).
- Make sure the promissory note documents have been reviewed and approved by your financial professional(s).
Lastly, the promissory note borrower, not the Solo 401k, must pay for the
expenses incurred in drafting the note, obtaining the appraisal for the property
securing the note investment, recording of the deed and title policy.
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