Don't get taken for a ride by companies touting Solo 401k LLC. Under this arrangement, the facilitating company charges in excess of $2,000, typically just for the formation of the LLC plus applicable registration/formation documents required by the state.
The LLC facilitator in many instances will state that a special purpose LLC is required in order to gain checkbook control of your Self-Directed Solo 401k funds, for privacy, and that a Solo 401k LLC is required to shield the self-directed Solo 401k from creditors (401k liability protection).
They are simply wrong for the following reasons:
· Solo 401k is already shielded from creditors thanks to the Employer Retirement Income Security Act of 1974 (ERISA).
· In 2005 Congress passed legislation that exempts qualified retirement plan (QRP) assets from bankruptcy estates under federal law.
· The Trust Solo 401k documents include language called "anti-alienation language" that further protects it from creditors.
The Solo 401k LLC Arrangement Creates Unnecessary Annual Fees
· The main reasons why the self-employed business owner chooses to open Solo 401k with checkbook control is to eliminate unnecessary fees and administration headaches.
· When you introduce an LLC to the Solo 401k process for making Solo 401k investments, common in an IRA LLC transaction, it results in unneeded annual fees.
· Reason being, the LLC is subject to annual filings and payment of annual taxes. For instance, California requires filing of Form 568 and payment of an $800 annual tax, which is due by the 15th of the 4th month of the taxable year, and is paid using CA Form 3522, Limited Liability Company Tax Voucher.
Unlike a Self-Directed IRA, Self-Directed Solo 401k Already Comes with Checkbook Control
· One of the main differences between a Self-Directed IRA and a Self-Directed Solo 401k, with respect to investment purposes, is that the Self-Directed Solo 401k can be setup with checkbook control without incorporating the LLC element that is required to gain checkbook control for the IRA LLC transaction.
· Therefore, incorporating the LLC element to Solo 401k adds an extract step that is not only more costly but also unnecessary.
It's Simple to Shield Your Personal Name
At Solo 401k plan establishment, you can assign any name that you wish to your Solo 401k.
· Therefore, since the Solo 401k checking account is generally setup in the name of the Solo 401k plan and under the Plan's EIN, and the alternative investments are made in the name of the Solo 401k plan, you have the option to name your Solo 401k a fictitious name like Palms Solo 401k instead of using your personal name.
Lastly, following blog contains information about Creditors and Solo 401k: http://mysolo401k.net/Blog-for-MySolo401k.html?entry=bankruptcy-and-creditors-claims-self
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