Contribute to Solo 401k and SEP IRA

Contribute to Solo 401k and SEP IRA | Open Solo 401k and SEP IRA | Transfer SEP IRA to Solo 401k | Rollover SEP IRA to Solo 401k

Can I contribute to SEP IRA and Solo 401k? Good question and the answer is yes the IR rules allow the self-eployed to contribute to both a Solo 401k and a SEP IRA. Therefore, you can Open Solo 401k if you have an existing SEP IRA for your owner-only business and contributed to both plans.

In fact, the rules allow the business owner to contribute to multiple retirement plans as long at the annual contributions limits are not exceeded between the two plans. Therefore, you could contribute to the SEP IRA and Solo 401k in the same year as long as the annual contribution limit is not exceeded.
Make sure to notify your new Solo 401k Provider if you want to rollover part or all of your SEP IRA to Solo 401k so that they can prepare the proper rollover form.

Refer to publication 560-Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) page 6 "More than one plan" for more information on contributing to more than one plan.

Here's link to PDF regarding pub 560:
http://www.irs.gov/pub/irs-pdf/p560.pdf

Solo 401k Vs. Individual 401k

 Open Solo 401k | Open Individual 401k | Solo 401k Vs. Individual 401k

Before you proceed to Open Solo 401k, make sure you understand the differences between Solo 401k and Individual 401k. There really aren't too many differences; however, some do exist. In this blog we cover the differences and similarities between Solo 401k and Individual 401k. Here's a hint on the differences: it just has to do with the Solo 401k Provider--the company where you open the owner-only 401k.

Solo 401k Vs. Individual 401k

Solo 401k

• Owner-only 401k that permits business owner to serve as trustee of the Solo 401k and, therefore, self-direct the funds into any investment that is not prohibited or disallowed. 

• Trustee can invest in alternative investments such as precious metals (gold, silver) Gold Solo 401k, real estate (rentals, fixer-uppers, condos, rehabs, etc.) tax liens, trust deeds, private shares of companies, etc.

• Allows for checkbook control (Solo 401k Checkbook Control)--this means Solo 401k trustee can place investments by simply writing a check. 

• Solo 401k trustee can make a loan (Solo 401k Loan) 
• Trustee can invest Solo 401k in life insurance for business owner and his or her beneficiaries

Individual 401k

• Just like Solo 401k, Individual 401k is a type of self-employed 401k, but commonly offered by brokerage firms, banks and insurance companies.

• Generally only allows for investing in equities (stocks and mutual funds), bonds, and Certificates of Deposits

• Generally restricts participant loans

• Does not permit checkbook control since the provider does not permit investments in alternative investments  (e.g., real estate, precious metals, tax liens, trust deeds).

 Similarities  Between Solo 401k and Individual 401k

• They are both approved by the IRS (IRS Solo 401k)

• They are both for the self-employed with no full-time employees

• They both allow for annual contribution amount of $50,000 for 2012 or $55,500 if the business owner is age 50 or older.

• They both require limited or no annual reporting

• They both accept incoming transfer/rollovers from IRAs with the exception of Roth IRAs.

• They both accept incoming rollovers from Thrift Savings Plans, Former Employer 401ks, 403b and 457.

Solo 401k Laws

Solo 401k Laws | Solo 401k Rules | Individual 401k Law

 

Solo 401k Laws

ERISA

The Employee Retirement Income Security Act of 1974, as amended (ERISA) is the law that applies to retirement plans including Solo 401k. Consisting of four parts or Titles, the enforcement of ERISA is the responsibility of the Department of Labor (DOL) and the Department of the Treasury (the IRS).

Qualified Plan

A qualified plan such as Solo 401k is one that meets the requirements of IRC 401(a). So before you proceed to Open Solo 401k study IRC 401(a) as it contains all the requirements with which a qualified plan and its sponsor must comply to obtain all the available tax advantages of having a qualified plan including Solo 401k.

The following are types of qualified plans: defined benefit plans, profits sharing plans, money purchase plans, 401(k) plans (including Solo 401k or Individual 401k) and stock bonus plans.

Form and Operational Rules

The IRC 401(a) rules must be met in form and in operation. Compliance in form means the Solo 401k plan document encompasses the relevant provisions of IRC 401(a). Treas. Reg. 1.401-1(a)(2) mandates the Solo 401k Plan to be a definite written plan. Not satisfying the form requirement causes the Solo 401k to be disqualified regardless if the Solo 401k plan is operated properly.

IRC 401(a)(1) (Plan Has to be for Employees and The Plan Assets Must Be Held in Trust)

To be qualified, the Solo 401k plan is required to be for the employees of the employer (in the case of the Solo 401k, the business owners or business partner). Therefore, the term employee encompasses a self-employed individual of a sole proprietorship or partnership.

In order to comply with the rules, the Solo 401k plan must be sponsored by an employer. Note that under IRC and ERISA, the word employer has different meanings in both sections.

Employer Defined for Tax Qualification Purposes

Pursuant to IRC 401(a), the employer is any employer (under common law principals) of the employees covered by the plan. The IRS details that a plan including a Solo 401k plan ceases to be a qualified plan when the sponsoring employer goes out of business, unless a successor employer takes over sponsorship of the plan. Such plan is commonly referred to as an orphan plan.

A self-employed individual is an employee of the trade or business with respect to which he or she is a self-employed individual within the meaning of IRC 401(c)(1). Therefore, the self-employed business is the employer that must maintain the qualified plan that covers the self-employed individual. For instance, if the trade or business is a sole proprietorship, then the employer is the sole proprietor (i.e., the sole proprietor is both the employer and an employee of the employer). On the other hand, if the trade or business is a partnership, the individual partners are treated as self-employed individuals, however it is the partnership that is the employer, as such it is the partnership that must establish the plan (i.e., the individual partners are treated as employees but the partnership is the employer).

Employer Defined for ERISA Purposes

In accordance with ERISA 3(5), the employer is “any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan.” The term also includes a group or association of employers acting for an employer in such capacity. A sole proprietorship or partnership is an employer for ERISA purposes only with respect to its common law employees. Note that for ERISA purposes, neither a sole proprietor nor a partner is treated as an employee.

Assets Required Held in Trust

IRC 401(a)(1) also mandates that Solo 401k plan assets be held in trust. A trust is a separate legal entity that holds title to assets set aside on behalf of beneficiaries. The written trust document outlines who is entitled to benefit from trust assets. Furthermore, the trust is administered by a trustee—in the case of Solo 401k, the business owner—who is responsible for safeguarding and investing the funds for the beneficiaries—again, I the case of Solo 401k the business owner.

IRC 401(a)(2) (Exclusive Benefit Rule)

A Solo 401k plan must be maintained for the exclusive benefit of the participant (business owner) and their beneficiaries. Known as the exclusive benefit rule, it prohibits the employer from diverting the assets for its own benefit. Not that even though the employer receives tax benefits from the maintenance of the Solo 401k plan (for instance, an income tax deduction for the contributions) does not violate the exclusive benefit rule. As you will learn, almost every rule has exceptions, and the exclusive benefit rule is no different. The payment of expenses from the Solo 401k plan, although not providing benefits to the plan participants, is permissible under the exclusive benefit rule, as long as the expenses are reasonable and relate to the administrative or fiduciary operations of the plan.

Paying Solo 401k Plan Expenses with Plan Assets

A Solo 401k plan may pay expenses relating to reasonable expenses of administering the plan, including investment management fees, recordkeeping fees, and reporting and disclosure expenses incurred by the Solo 401k plan. The DOL has issued only piecemeal guidelines in this area.

IRC 401(a)(9) (Required Minimum Distribution Rules)   

Just like all  qualified plans, a Solo 401k Plan must commence the payment of benefits no later than the required beginning date prescribed by IRC 401(a)(9), which is wholly or partly determined by when the employee attains age 70 ½.

IRC 401(a)(13) (Antiassignment Rule)

A participant’s accrued benefit is protected from assignment or alienation. This is called the antiassigment rule. The protection extends to garnishment, levy, execution or other legal or equitable process by the Solo 401k participant’s creditors. The trust assets are protected from the employer’s creditors because the trust assets are held for the exclusive benefit of the participants and their beneficiaries and are not part of the employer’s general assets.  

IRC 401(a)(16) (Annual Addition Limits)

A qualified plan including Solo 401k is not allowed to exceed the limitations on contributions and benefits that are imposed by IRC 415.

IRC 401(a)(17) (Annual Addition Limits)

A qualified plan may not determine contributions or benefits by taking into account more than a prescribed dollar amount of compensation, which is maximum of $250,000 for tax year 2012 and it usually increases by $5,000 increments each year, but may decrease in some years.

Domestic Trust

IRC 401(a) requires that the Solo 401k trust be created or organized in the United States (i.e., a domestic trust).

Treas. Reg. 1.401-1(a)(3)(I) mandates that a trust including a Solo 401k trust forming part of a qualified plan be created or organized in the United States, and be maintained at all times as a domestic trust. Failure to qualify as a domestic trust would cause the trust to lose its tax exemption under IRC 501(a).

The Solo 401k Trustee

The trustee is the person named in the Solo 401k trust or who is appointed as trustee by a named fiduciary, usually the employer in the case of a sole proprietorship. The trustee has exclusive authority and discretion to manage and control the assets of the plan, unless the trustee is subject to the investment directions of a named fiduciary or investment manager.

Solo 401k Summary Plan Description

The summary plan description (SPD) is the primary disclosure document required by Title I of ERISA. Through the SPD, the participants and beneficiaries receive information about the material provisions of the Solo 401k plan, how to make claim for benefits and rights under ERISA. The Solo 401k Provider must provide the SPD to  each employer that adopts the Solo 401k plan.

Use Solo 401k to Buy Hong Kong Real Estate

Solo 401k | Buy Hong Kong Real Estate with Solo 401k | 401k Real Estate

While Solo 401k may be invested in foreign real estate including Hong Kong real estate, it may be a wise choice to hold off in doing so for now as a property bubble currently exists in Hon Kong. For example, office rents are at $160 per square foot, which is the highest in the world. At prices 55% above those in London, even considering investing in a new home in Hong Kong is currently undesirable.  Prices have gone up 50% from early 2009, putting them at around the same level in the 1990s when Hong Kong's last property bubble burst.

Reasons for the rapid rise in Hong Kong property values include:

Just like China, Hong Kong has pegged its currency to the U.S Dollar, resulting in relaxed monetary policy and interest rates below inflation. As a result, having no where else to obtain high investment returns, the locals are buying real estate.

Hong Kong's government has a monopoly on land, only releasing its grip when to its advantage of course. As a result, fewer homes get built. For example, when compared to the 1990s when new built homes were around 23,000 a year, the last few years annual figures have only been 10,000 to 11,000. This is another good reason no to Open Solo 401k solely for investing solely in Hong Kong real estate.

There are signs that the Hong Kong Real Estate Bubble may soon burst 

 Hong Kong's soon to be in June new chief executive C.Y. Leung has promised to overhaul the land policies and accelerate subsidized housing, which will result in slowing down the private market. However, this will result in locals selling and taking their profits ahead of the upcoming land overhaul.

 Lastly, when you decide to purse investing in Hong Kong real estate with your Solo 401k, make sure to construct a good team. For example, besides opening your solo 401k with with a Solo 401k Provider whose Solo 401k plan documents  allows for investing in  real estate, you will want to find a tax professional who specializes in Hong Kong property tax laws as well as a good realtor.

Solo 401k Rules

Sometimes called Individual 401k or Solo K, a Solo 401k is a traditional 401k plan for the self –employed with no employees besides that person and his or her spouse.

Solo 401k Contribution Limits

Two contribution types makeup Solo 401k (employee and employer) and the business owner can make both:

Employee Contribution—as much as 100% of earned income

o   2013: $17,500 or $23,000 if age 50 or older

o   2014: Note yet published by the IRS

Employer Contributions—also known as profit sharing

o   2012: This amount cannot exceed $51,000

o   If a business type is Corporation, the maximum is 25% or gross income

o   If business type is Sole Proprietor/Partnership, the maximum is 20% of net income

IMPORTANT: Note that when combined, the two contribution types cannot exceed the annual limit of $51,000 for 2013 plus the $5,500 if you are age 50 or older.

Computing the Maxim Solo 401k Annual Contribution

Use earned income from self-employment business. Net income is net earnings after you deduct the following:

o   One-half of your self-employment tax

o   Contributions made on your behalf

o   Click on Solo 401k Calculator to conveniently calculate both Solo 401k contribution types.

Qualifying for Solo 401k

Only two rules must be satisfied to take advantage of Solo 401k:

o   Generate Self employment activity

o   Have no full-time employees

Self employment constitutes the intention of producing income from services performed with the intention to make significant contributions to the Solo 401k plan.

Business Types that can Open Solo 401k

Any business type can Open Solo 401k, including:

o   Sole Proprietorship

o   Limited Liability Company

o   C and S Corporation

o   Limited Partnership

Part –time Employees may be excluded from Participating in Solo 401k

Solo 401k does is not required to be offered to following types of employees:

o   Those under age 21

o   Those that work less than 1000 hours per year

o   Union employees

o   Nonresident alien employees

Annual Solo 401k testing for nondiscrimination

Since common-law employees do not participate in Solo 401k, annual nondiscrimination testing is not required. However, if the owner-only business hires common-law employees (full time employees besides spouse who adopted Solo 401k), nondiscrimination testing is required and therefore the solo 401k will need to be converted to a safe harbor 401k plan, which your Solo 401k Provider should be able to accommodate.

Annual Solo 401k 5500 EZ Reporting

Only when Solo 401k exceeds $250,000 in value does it have to file Form 5500 EZ.

Set-up your MySolo401k.net Solo 401k Plan at Wells Fargo

If you bank at Wells Fargo or would like to bank at Wells Fargo, consider also opening your Solo 401k checking account at Wells Fargo.  This is possible through a MySolo401k.net Solo 401k with checkbook control, and it generally takes no more than 24 hours to open through our turnkey process.

When you Open Solo 401k from MySolo401k.net with checkbook control, you make your alternative investment purchases (e.g., real estate, trust deeds, tax liens, precious metals, etc.) by writing a check from your Solo 401k checking account, which can be opened at your local bank or Wells Fargo.  As the trustee of your Solo 401k, you then safe keep the paperwork in connection with the alternative investment purchase.  In other words, Wells Fargo or your local bank’s only role in the Solo 401k from MySolo401k.net is to provide a checking account that is titled in the name of the Solo 401k.

Wells Fargo also offers Solo 401k, so don’t confuse their Solo 401k with Solo 401k from MySolo401k.net which comes with checkbook control and, unlike the Wells Fargo Solo 401k or similar financial institutions Solo 401k, a Solo 401k from Mysolo401k.net allows for Solo 401k Loan (participant loan) which comes in handy if you have heavy financial need including growing your business. But the most distinctive difference of a Solo 401k from Mysolo401k.net is that you run the show. Specifically, you serve as trustee and administrator of your owner-only Solo 41k.  Thus, you have freedom to make all the investment decisions including self directing the Solo 401k into investments such as real estate, precious metals (Gold), tax certificates, private placements, notes an more.

At the same time, as your Solo 401k Provider, MySolo401k.net  will not only assist you in setting up the Solo 401k checking account at your local bank or at Wells Fargo, but will also help you administer the Solo 401k plan as well as prepare the Solo 401k loan documents if you are looking to borrow from Solo 401k.

Do I Have to File a Tax Return for Solo 401k?

Generally, you will not need to file a tax return for your Solo 401k Plan because it's tax exempt under IRC 401 and  IRC 501. However, only under three circumstances will you need to file tax return for Solo 401k, which are:

Solo 401k Balance Exceeds $250,000

When your Solo 401k balance exceeds $250,000,  you will need file informational tax return titled Form 5500 EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan with the IRS by July 31. A two page return, your Solo 401k Provider should be able to file Form 5500 EZ on you behalf. If not, your accountant can take care of it for you. Again, if your Solo 401k balance is $250,000 or less, you do not need file Form 5500 EZ. Visit Solo 401k Form 5500 EZ to learn more.

Close Solo 401k

You are required to file a final Form 5500Z Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan with the IRS when you close your Solo 401k. This is required regardless of account balance. So don't confuse this requirement with the over $250,000 balance which applies to Solo 401k while it remains in operation.

Take Distribution from Solo 401k

The last circumstance that will subject your Solo 401k to tax reporting is when you make a distribution from Solo 401k, or process a direct rollover or transfer to an IRA or another 401k, respectively. All three of these transactions require reporting on Form 1099-RDistributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

Lastly,  before you Open Solo 401k for investing in alternative investments such as real estate, precious metals, trust deeds, tax liens, etc., it is recommended that the Solo 401k Provider that you sign-up with offers full service including filing Form 5500 EZ and Form 1099R when applicable.

Personal 401K | Self-Directed Personal 401k | Checkbook Control

Personal 401k | Self-Directed Personal 401k | Self-Directed Personal 401k with Checkbook Control

A Personal 401k is another name used to refer to Solo 401k. The primary feature of Personal 401k is that it allows the self employed business owner to make high annual contributions ($55,500 for 2102) to save for retirement tax free if Roth Solo 401k contributions are made.

Personal 401k can also be invested in alternative investments such as real estate, precious metals (Gold, Silver), tax liens and more. However, in order to make alternative investments, the services of a Solo 401k Provider whose plan document allows for checkbook control must be utilized.

A Self-Directed Personal 401k with Checkbook Control allows the personal 401k trustee, who is typically the business owner, to make personal 401k investments by writing a check. The alternative investments (the documents associated with the purchase) are then safe kept by the personal 401k trustee. Again, the key to this feature is to open solo 401k with a provider whose personal 401k documents allow for alternative investments.

What is a Solo 401k (commonly called: Individual 401k)?

In this blog posting we thoroughly educate you on what a solo 401k is from A to Z with no jargon, just solo 401k facts and illustrations to help you decide whether a solo 401k is right for you and which  solo 401k provider to use.

Inception of Solo 401k aka Individual 401k

While 401k plans have been available since 1974  as a result of the passage of ERISA (Employee Retirement Income Security Act), it wasn’t until 2002, the year EGTRRA (Economic Growth and Tax Relief Reconciliation Act of 2001) became permanent, that  the solo 401k exploded in popularity.

EGTRRA affected Solo 401k in that now the self-employed with no full time employees can utilize a 401k instead of other self employed retirement plans, such as SEP and SIMPLE IRA to save for retirement while doing so at a lower cost. Especially when compared to full blown company 401k plans (that is, 401k plans for companies with full-time employees).

Prior to the passage of EGTRRA in 2002, it made more sense for the self employed or owner-only business to save for retirement through a SEP or SIMPLE IRA because the annual contribution limits were very similar, but the SEP and SIMPLE were easier to administer.

Key Changes in 2002 & 2006 to the owner-only 401k (aka solo 401k)

Higher Annual Contribution Limits

• Contributions to a solo 401k plan include two types : 

1. employer Contribution (profit sharing ) and
2. employee Contribution (Salary Deferral)

• Per IRC Sec. 404, the profit sharing annual tax- deductible contribution increased from 15 percent to 25 percent.

• The contribution limits apply separately to each solo 401k participant.

• Per IRC Sec. 4159( c ) (1), resulting from EGTRRA, the  maximum annual-contribution limit  (for both employer and employee contributions)  increased, which is $53,000 for 2015 and $59,000  if you are age 50 or older (the catch-up amount). 

• Both of these contribution types are subject to annual cost of living adjustments (COLA).

• Roth Solo 401k contributions are permitted and are made up of  the following:

1. Salary deferral: $18,000 for the 2015 tax year and, for those who turn 50 anytime during 2015 or are age 50 or older, can make an additional catch-up contribution amount of $6,000.

 Solo 401k Loan (borrow from Solo 401k)

Per IRC Sec. 4975(f)(6), EGTRRA allows owner-only business owners to borrow from solo 401k . The solo 401k loan feature applies to each business owner separately, thus allowing each to borrow the maximum limit: 50% of balance not to exceed $50,000.

                 
 Solo 401k Provider's Role

Since regulations allow the business owner(s) to serve as trustee (i.e., is provide their own record keeping—trustee their plans alternative investments)  of his or her solo 401k (See IRS Solo 401k for specific language pertaining to this),  a self-directed solo 401k provider that charges fair fees but is experienced in 401k compliance rules is recommended.

What Type of Business Can Participate in Solo 401k or Individual 401k?

All Business Entity Types

The rules permit all business types to participate in solo 401k, such as sole proprietorships, partnerships, corporations (whether S or C corporations), and LLCs.

Owner-only Businesses

Solo 401k or Individual 401k is for businesses in which only the owner and his or her spouse qualifies for solo 401k plan; hence why Solo 401k is exempt under federal rules from costly administrative requirements commonly applicable to traditional 401k plans.  A common Owner-only business consists of just the business owner, whether incorporated or unincorporated, and with no full times employees other than his or her spouse.

Family businesses is an additional business type that often falls under the owner-only business category   since the business owner’s spouse is the only other employee.

Businesses Having Certain Type of Common-Law-Employees

While solo 401k is for owner-only businesses, those that employee common-law-employees that fall under the following can be excluded from participating in solo 401k. 

• Employees under age 21
• Employees working part-time (less than 1,000 hours per year)
• Union employees
• Nonresident aliens

Therefore, the business owner can still participate in Solo 401k plan even if he or she employees common-law-employees as long as one of above exclusions are satisfied.

Additional Features and Perks of Participating in Solo 401k

 Not Required to Contribute Every Year

Before the passage of EGTRRA companies that participated in a retirement plan were often required to make a certain amount of annual contributions, especially for money purchase and defined benefit plans. Therefore, before passage of EGTRRA business owners had to make certain level of contribution. Not so anymore, business owners, including owner-only businesses no longer have to make annual solo 401k contributions. This is especially beneficial if the business owner does not have a very productive business year.

 Liberal Distribution Options

Unlike defined benefit plans and money pension purchase plans, which tend to restrict distributions unless the business owner retires or terminates the plan, Solo 401k is more lax when it comes to making distributions. For example, generally you can distribute rollover funds originating from IRAs before normal retirement age.

Opportunity to Consolidate Retirement Accounts

With the exception of Roth IRAs, which, currently, the rules do not permit to transfer/roll over to Roth Solo 401k, all other retirement accounts can be transferred/rolled over to Solo 401k thanks to the Pension reform (EGTRRA which became effective January 1, 2002). As a result, after you open solo 401k, it serves as a good retirement vehicle to consolidate all your retirement accounts. Visit consolidating retirement accounts to view complete list of retirement accounts that can be transferred to solo 401k. What’s more, by consolidating other retirement plans to Solo 401k, fees can be greatly reduced, funds can be managed more easily and you can gain tax free access to the rolled over funds through a solo 401k loan (participant loan).  

Inexpensive Administration

While solo 401k falls under same umbrella as 401k, it is considerably more cost-effective than traditional 401k plans in that solo 401k is exempt from nondiscrimination testing which applies to certain 401k plans. Also, solo 401k only covers the business owners (spouses as well) and therefore files Form 5500 EZ, a simpler return when compared to Form 5500, a more complex and longer form required filing every year. On the other hand, the Solo 401k Form 5500 EZ is only filed once the account value exceeds $250,000 and when the plan terminates. Therefore, solo 401k may not be subject to reporting in certain years.

Serve as Trustee of the Solo 401k

Pursuant to IRS language listed on the following IRS website link, the business owner may serve in a trustee capacity of his or her  Solo 401k, thus resulting in being responsible for the activities of the solo 401k trust and its assets. 

http://www.irs.gov/Retirement-Plans/Plan-Sponsor/401%28k%29-Resource-Guide---Plan-Sponsors---Starting-Up-Your-Plan

Option to Invest in Alternative Investments

Solo 401k is often referred to as self-directed 401k because the rules allow for investing in alternative investments such as precious metals (Solo 401k Gold), real estate, trust deeds, private company shares, currency, etc. For a list of more investment types visit: Solo 401k Investments

Solo 401k Prohibited Transactions

While a self-directed solo 401k allows more investment flexibility (that is, you can invest in precious metals, real estate, tax liens, LLC, etc), with more freedom comes more responsibility.  As such, make sure you are well versed in the prohibited transaction rules before making aforementioned investment types. For instance, make sure you understand what “self-dealing” means, which means that your Solo 401k cannot participate in a transaction that benefits you, certain family members or your business. For list of prohibited transaction examples visit: ProhibitedTransaction Illustration

                                    
                                     
Checkbook Control Solo 401k

Checkbook Control at Local Bank: Checkbook feature can be added to Individual 401k or Solo 401k (hence why it’s often called Checkbook Control Solo 401k). However, this feature only makes sense if you plan to invest in alternative investments such as real estate, precious metals, trust deeds, tax liens, etc.). Reason being, it’s more cost effective and faster than going through a self-directed solo 401k custodian such as Entrust, Sterling Trust, Equity Trust, Lincoln Trust, or Pensco Trust.  Faster in that you don’t have to submit investment instructions for the purchase to the custodian or pay transaction fees. Instead, you simply write check from the Solo 401k checking account for the purchase, and you safekeep the paperwork in connection with the alternative investment purchases. For a list of investment forms to assist you in documenting the alternative invesment purchases visit: Solo 401k Forms

Solo 401k Checkbook Control Brokerage Account: For those looking to still invest in equities in addition to alternative investments such as real estate, preciouse metals (gold, silver) trust deeds, etc., you can open Solo 401k with checkbook control at following brokerage firms:
Click here to learn about Charles Schwab Solo 401k
Click here to learn about Fidelity Solo 401k
Click here to learn about Ameritrade Solo 401k

When you open Solo 401k brokerage account with checkbook control, as trustee of solo 401k, you will write checks to make alternative invesment purchases and safeek the applicable invesment documents.

How Solo 401k or Self-Directed 401k Partners with Investor to Purchase Real Estate

Partner With Outside Investor

A method of purchasing real estate with your Solo 401k is to partner with an outside investor. This is common when your solo 401k or self-directed 401k does not have enough funds to make the real estate purchase outright, or it will not have enough funds to cover all future expenses associated with real estate property. For example, ongoing expenses such as taxes, property insurance and repairs. This method applies to all types of real estate such as rentals, commercial, apartment buildings, mobile homes, condominiums, etc.

Solo 401k Real Estate Purchase in Conjunction with Outside Investor Example

Suppose you want to purchase a condominium with your Solo 401k but it only has enough funds to cover 60% of the purchase price as well as enough funds to cover other purchase costs (e.g., closing costs, insurance) associated with the transaction. Therefore, your solo 401k would own 60% interest in the condominium and the outside investor—whether an outside solo 401k or IRA, person or entity—would own the remaining 40% interest.  In this scenario 60% of current and future expenses are paid with your self-directed 401k and 60% of profits (e.g., monthly rents and proceeds when you later sell condominium) flow back to the solo 401k.   

Titling Property Purchase Correctly

When solo 401k co-invests with outside party, as explained above, make sure to correctly title the purchase. Keep in mind that because the investment is owned by your Solo 401k, not you, titling would read: XYZ Solo 401k, FBO John Doe, Trustee, 60% Undivided Interest.  

Solo 401k Provider

Lastly, before you open solo 401k make sure that the solo 401k provider allows for investing in alternative investments such as real estate. Often times, the solo 401k provider will only administer equities.