Transfer or Rollover Former Employer 401k to Solo 401k or Self-Directed Solo 401k

When you are ready to transfer your old/former employer 401k to a solo 401k or self-direted solo 401k with checkbook control, read this blog as it explains the process and contains procedures for transferring 401k to solo 401k conveniently and properly. Of course, you first need to open solo 401k with a provider that allows for investing in alternative investments such as real estate and precious metals.

Procedure and End-Result of Transferring Former Employer 401k to Solo 401k With Checkbook Control 

Transfer/Rollover Form

Most likely your former employer requires their transfer out forms for rolling transferring 401k to solo 401k. However, your new solo 401k provider can also supply transfer/rollover form if necessary.

Completing Transfer/Rollover Form

Be sure to fill out form properly to prevent tax withholding and/or penalties. Therefore, select "transfer" or "Direct Rollover" option on form.
By Check: Under payment instructions, elect to have check made payable to your solo 401k not just your name. For example, check would be made payable to "ABC Solo 401k, Jeff Doe, Trustee"

By Wire: Alternatively, you can have funds wired to Solo 401k checking account after you open solo 401k checking account for solo 401k at your local bank or brokerage firm.

1099-R Reporting by Releasing 401k Institution
The transfer/direct rollover from 401k is not taxable but reportable on Form 1099-R. To report transfer/rollover to IRS, the releasing custodian will tax report using code "G" in box 7.

Form 1040 Reporting
Make sure to report the direct rollover/transfer of former employer 401k plan to solo 401k when you file your annual tax return the following April or, if you file extension, by your tax return due date plus extensions.

How to rollover/transfer TSP (Thrift Savings Plan) to Solo 401k (self-directed 401k)

If you  are looking to open solo 401k for investing in real estate, notes, private shares, precious metals (e.g., gold, silver) as well as borrow from solo 401k (Solo 401k Loan), you may want to consider transferring/rolling over your TSP (Thrift Savings Plan) to a solo 401k plan.

However,in order to timely transfer/rollover TSP to Solo 401k certain procedures must be followed, which are described below.

Procedures for timely and effectively processing transfer/rollover of TSP to Solo 401k

Forms

1. Thrift Savings Plan Form (provided by TSP Company)
2. Executed Solo 401k Adoption Agreement (provided by solo 401k provider) that allows for investing in alternative investments such as private shares, precious metals, notes as well as borrow from solo 401k. 
3. IRS Determination Letter
4. Cover Letter from Solo 401k Provider—cover confirm to TSP representative that you are the named trustee of the solo 401k.

How to Complete TSP Form

• “Type of Plan”: Check “Eligible Employer Plan”
•  "Plan Account Number", list the solo 401k plan number which is assigned by solo 401k provider
•  “Plan Name”, write name of your Solo 401k plan (for example, John Do Solo 401k Trust)
•  “Make check payable”, write name of solo 401k, your name (for example, John Do Solo 401k Trust, John Do, Trustee)
•  “Mail to”, list your home or business address since you are the Trustee of the Solo 401k plan.
•  “Certification”, you sign as “Participant”

Lastly, it usually takes about 1 to 3 days to open solo 401k; however, it could take up to 3 weeks for TSP provider to release funds.

Solo 401k | Solo 401k and Real Estate | 401k Real Estate | 401k Investments

Solo 401k | Solo 401k and Real Estate | 401k Real Estate | 401k Investments

With a self-directed Solo 401k, you have option to invest in many types of real estate such as rentals, condos, fixer uppers, apartments, commercial buildings, family and rental homes, and foreign property to name a few. Since you are named trustee of  Solo 401k, you make real-estate purchases by writing checks from Solo 401k checking account and signing as trustee of solo 401k.

Even though it is not very well known, you can co-invest with your Solo 401k when purchasing real estate by using personal funds in conjunction with Solo 401k funds.  This type of transaction is often known as Tenancy-In-Common-Ownership. Further, non-recourse loan can be incorporated when purchasing real estate with solo 401k or self-directed 401k. Under non-recourse loan or debt financing arrangement, your solo 401k  in-effect borrows from a bank or private investor and uses borrowed proceeds to fund the solo 401k real-estate purchase. You can find full definition for non-recourse loan below as well as link to blog on topic.

Process for making solo 401k or 401k real estate purchase

1. Nail down price range and if Solo 401k will use non-recourse financing and/ or participate in tenancy-in common transaction.
2. Identify investment property
3.  If Solo 401k will incorporate non-recourse loan or debt financing, identify lender and loan terms.
4. Make offer on property
5. Have a third party (an attorney or Title Company) draw up real estate purchase documents.
6. Notify third party that purchase is being made with  Solo 401k funds and, therefore, your Solo 401k is to be listed as purchaser, not you.

As trustee of Solo 401k, you safe keep following documents in connection with real-estate purchase:

• Purchase Contract
• Settlement Agreement
• Escrow Instructions
•  Recorded Deed
• Copy of the loan documents (if your Solo 401k is utilizing non-recourse loan)
• As trustee of Solo 401k, you sign and forward the documents to the escrow agent, and write  check from Solo 401k checking account for the purchase

Definitions

Tenancy-in-Common Ownership—allows for purchase of real estate with personal funds and Solo 401k funds. Each will own a specific percentage of the property. As a result, the income and expenses associated with the investment will be proportionally shared based on the ownership percentage. Under tenancy-in-common, you can co invest your Solo 401k with family members such as your spouse or siblings. It is important to adequately reflect each investor’s percentage of ownership on the paperwork and that the expenses and income are proportionally shared by each party to the transaction.

Non-recourse loan— under this process, your Solo 401k can take a loan from a financial institution such as a bank or an investor for the purchase of real estate. If the loan isn’t paid back by your Solo 401k as promised, the lender may take the Solo 401k-owned property used to secure the debt, but may not take recourse against any other assets of your Solo 401k.  Put simply, the Solo 401k-related loan can never affect any assets other than those used to secure the loan. Learn more about non-recourse loan or debt financing at following blog:

http://mysolo401k.net/Blog-for-MySolo401k.html?entry=quick-and-precise-explanation-of

Solo 401k Checkbook Control Explained (process/procedure) Easy Guide from A-Z

After you open solo 401k with checkbook control (solo 401k checkbook control), the next step is to open checking account for solo 401k at your local bank. In some cases multiple checking accounts for same solo 401k trust might be necessary.

For example, multiple checking accounts are required if both participants/trustees participate or if you plan to make both Roth solo 401k and regular solo 401k contributions.

What is more, not all banks have trained their bankers on solo 401k checkbook control, so you are often greeted with a puzzled look from the banker.  Well, to make the process much easier, we have composed following explanation and procedure for your local banker’s reference after you open solo 401k (i.e., execute the solo 401k adoption agreement from your solo 401k provider).

 

Background

• Solo 401k falls under IRS Code
• Solo 401k is a type of Trust
• Solo 401k is a simplified version of a 401(k) and is only for the self-employed with no full-time common law employees.
• You as the business owner are the named solo 401k plan trustee
• The Trustee makes all decisions for solo 401k trust, including where to open checking account for holding liquid funds.
• Since you are the trustee, the bank where you open solo 401k checking account will not be providing services such as custodial, fiduciary or custodial services.

Solo 401k Checking Account Guide/Logistics

  

Solo 401k Documents Provided to Bank

1. Present executed Solo 401k Adoption Agreement to banker
2. While it is generally not necessary to provide copy of 50+ page 401k Basic Plan Document, it may be provided upon request.

Bank Account Checking Account Application

• Account holder is the solo 401k plan
• Responsible party (having signing authority) is the trustee(s)
• The EIN or TIN is the Solo 401k Trust’s not the trustee’s social security number
• The EIN for Solo 401k is listed on the Solo 401k Adoption Agreement

IRS W-9-Request for Taxpayer Identification Number and Certification

• Name and Business Name list name of solo 401k (e.g., Jane Do Solo 401k Trust)
• Check off “Trust”
• Other, write Solo 401k Retirement Trust
• Check off “Exempt payee”
• List address of solo 401k trustee
• List EIN for Solo 401k Trust

Common Questions when opening solo 401k checkbook control checking account

Question: Account Name/Plan Name

Answer: Use solo 401k plan name (e.g., John Do Solo 401k Trust, ABC Solo 401k Trust)

Question: Trustee/Manager

Answer:  you are the named trustee

Question: Signature Requirements

Answer: Trustee’s signature to process transactions on behalf of solo 401k trust

Question: Banking Features

Answer: All banking features, except for credit card or line of credit since you cannot issue personal guarantee, can be exercised.  Features that can be used are check writing, online banking, ATD/Debit Cards, ACH & Wire transactions.

Question: W-9 Form

Answer: If asked to fill out IRS form W-9, “Request for Taxpayer Identification Number and Certification”, in the 3^rd box for entity type, mark “other”, enter “Solo 401k Retirement Trust”, check the box indicating Plan is and Exempt Payee.  Write in EIN for Solo 401k trust (see page 1 of Adoption Agreement).

Additional Information

Read our blog on:  on advantage of solo 401k checkbook control

http://www.mysolo401k.net/Blog-for-MySolo401k.html?entry=advantages-gained-when-you-open

Read our Blog on: IRS Solo 401k

http://mysolo401k.net/Blog-for-MySolo401k.html?entry=reason-why-solo-401k-or

Information on Debt Financing/Non-Recourse Loan Solo 401k

Now that you have made decision to open solo401k, you next need to determine if you will invest solo 401k in real estate and if debt financing will be incorporated. This is why solo 401k is sometimes referred as debt financing solo 401k or non-recourse solo 401k.  We have provided the following information regarding the use of debt financing or non-recourse loan option after you open solo 40k.

• Debt-financing solo 401k means that your Solo 401k can take a loan/ borrow from a bank or investor for use in real estate purchase.

• Use of debt financing results in more available cash for investing solo 401k in real estate.

• The term non-recourse keeps the lender from coming after your personal assets or any other assets of your solo 401k in the event solo 401k defaults in making non-recourse loan payments.

• If loan default or foreclosure takes place, the lender may only go after the real-estate property that was purchased with the non-recourse loan proceeds.

• Because the property is the only asset attached to the non-recourse loan, only these funds can be used for collateral.

• Debt financing for 401k became popular in the early 200s.

• Non-recourse loans offered not only available through banks but also through private investors.

• Non-recourse loan term is typically for 15 to 25 years if offered by bank, and same or less if offered by private investor.

• Debt financing frees up money in Solo 401k that can therefore be invested in additional investments.

• Non-recourse loan differs from conventional loan from a bank in that the following does not apply since loan is to Solo 401k instead of you:

1. W-2’s are not reviewed

1. Tax returns are not reviewed

1. Only solo 401k assets instead of personal assets are reviewed

• Non-recourse loan is to Solo 401k, therefore loan will not show-up on your credit report and your social security number is not used. As a result, it’s important to list the Solo 401k EIN (employer identification number) on solo 401k non-recourse loan documents.

Background and History of Self-Employed 401k

Commonly called Solo 401k Plan, Individual 401k Plan or Self-Directed 401k, the IRS created self-employed 401k in 1974 with the passage of ERISA. Therefore, self-employed 401k or Solo 401k is quite old. You see, a self-employed 401k is a traditional 401k but as the name implies for the self-employed and is thus subject to the same rules as all other 401ks.

Further, with the passage of EGTRRA in 2002 Solo 401k or self-employed 401k was brought into the spotlight because EGTRRA tremendously increased the amount that could be contributed to the 401k.

Specifically, EGTRRA promulgated that employee contributions are not included in the deduction limit calculation. Instead, just the employer contributions (profit sharing amount) are limited to the less than or equal to 25% of the employees’ (self-employed) compensation. The employee contributions can be made on top of the employer contributions.

Before the passage of EGTRRA, the employer profit-sharing contributions were combined with the employee deferral when determining the maximum deduction limit of 25% of employee’s compensation, thereby reducing the maximum annual contribution amount.