Solo 401k can be Invested in foreign investments but the Trustee has to live in the USA

While all 401k plans including Self-Directed Solo 401k (a/k/a Solo 401k, Individual 401k, Self-Employed 401k) allow for the Solo 401k Trustee to invest the plan assets in foreign investments such as foreign real estate, private companies, etc., most Solo 401k trustees are not aware that he or she must reside in the United States in order to make Solo 401k investment decisions including investing the Solo 401k in foreign assets. This is substantiated by a recently completed international project by the EPCU (Employee Plans Compliance Resolution Systems) whereby they discovered the following:

Templeman stated that 95% of the respondents found that the vast majority of the foreign companies understood the rules regarding the need to maintain domestic trusts and that substantive decisions must be under the control of persons in the United States.

You can view this article by visiting following link: http://hr.cch.com/news/pension/072712a.asp

Additional Information:

Following was pulbishend in IRS newsletter which can be retrieved via following link:

http://www.irs.gov/pub/irs-tege/epn_2012_1.pdf

A trust is a domestic trust if:

• A U.S. court can exercise primary supervision over administration of the trust, and

• One or more U.S. Persons have authority to control all of the trust’s substantial decisions.

Plan requirements including Solo 401k

In order to be an internal Revenue Code Section 401(a) qualified plan or other profit-sharing plan’s trust must be a domestic trust.

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).

Closing Words

Therefore, if you currently operate a Self-Directed Solo 401k where your are the Trustee of the plan and are looking to move to a foreign country like Panama or Costa Rica, you may want to name someone else who will be located in the USA as the Trustee of the Solo 401k even if you do not plan in investing in foreign real estate (whether in foreign countries such a Costa Rica or Panama).