BACKGROUND: Here is
what we are trying to do. I used to work for a company that is now giving
me the opportunity to receive my pension in a lump sum now. I'd like to
take advantage of this opportunity by setting up a solo 401k and investing it in real estate. The only way I can do
that now and not get hit with penalty taxes is to roll it over into a
retirement plan such as a solo 401k plan.
I did some research which eventually
led me to MySolo401k.
My husband has an LLC that is in his
name only that he currently does his real estate business through. He has
a business partner that he works with but is not set-up on this LLC.
After doing research, I think the Solo 401k plan is going to be the more flexible option that better meets our
needs. Our needs include:
- We want to be able to have direct
control of the money for investing, especially in real estate
- We want to minimize or eliminate
any payments that come from the transactions around these investments
- I currently contribute to my
current employer's 401K (it's not a self-directed 401k plan so it should be ok).
- My husband and I did not have any
current plans to contribute to this 401K, but I like the option.
- I want both of us to legally have
access to the money which is why we may need to set-up 2 plans.
- I'd like to set-up our solo 401k bank
account(s) with Capital One.
I'm ready to move forward but still
fuzzy on some steps. I have a deadline for turning my distribution paperwork
back to my former employer and to request that they transfer/rollover the
pension to a solo 401k, so I do have to set this up sooner than later.
RESPONSE
First, the solo 401k plan that we offer permits for investing in alternative investments such as real estate in addition to promissory notes, precious metals, tax liens and private company shares, to name a few.
Second, the retirement plan portability
rules allow for the transfer/rollover of pension plan funds to a 401k plan including
a solo 401k plan. Therefore, your former employer’s distribution paperwork will
contain the rollover/transfer option to another qualified plan such as a solo
401k plan.
Third, as IRS Solo 401k rules detail, a solo 401k can be setup for the
business owner and his or her spouse. However, in order for the business owner’s
spouse to contribute to the solo 401k plan, he or she would also need to perform
business activity for the self-employed business (in this case the LLC). As such, the solo 401k plan would be setup in
the name of the self-employed business (in your case the LLC). So if the name
of the LLC is XZY LLC, the name of the plan would be XYZ LLC Solo 401k Trust.
Further, your spouse and or both of you can be listed as solo 401k trustees.
That way you can both make decisions on behalf of the plan.
Moreover, separate bank accounts
would be setup for each of you if both will make contributions and/or transfer
funds into the solo 401k plan. Therefore, both solo 401k bank accounts would be setup as a follows.
XYZ LLC Solo 401k Trust F.B.O. Jane
Doe
XYZ LLC Solo 401k Trust F.B.O. John Doe
As you can see, it is the same solo 401k plan
but two separate bank accounts for holding each participant’s contributions and
or rollover funds, and investment gains.
Please let me know what you think.
Thanks a lot,
Kathy in Michigan
