Key To Good Solo 401k Provider

You may think finding a good solo 401k provider is easy. However, with the ever increasing number of new Solo 401k providers on the block, you should look for the following in your Solo 401k provider:

Offers Flexible Solo 401k Trust Document

Before signing up with a solo 401k provider, make sure that their Solo 401k or Individual 401k plan has following options:

• Option to direct your own  alternative investments (for example, real estate, precious metals, notes, private shares, currency, etc)
• Allows for Participant loans (borrow from solo 401k)

Make Sure Solo 401k Provider Provides Full Service at Flat, Low Fee

Compared to other 401k types, Solo 401k is fairly easy to administer. However, you should still make sure that the Solo 401k provider that you go with will provide the following services:

1) Annual Form 5500EZ preparation

2) Form 1099R preparation

3) Provides participant or solo 401k loan documents

4) Assistance in calculating annual solo 401k contributions

5) Education on solo 401k rules

6) Facilitates or reviews alternative investments for proper registration

7) Great customer service

8) Opened on Saturday

9) Prepares transfer/rollover forms

The Superiority/Power of Checkbook Control Solo 401k or Individual 401k

When you open Solo 401k with checkbook control option (checkbook 401k),  here are the benefits:

Countless Investment Options

You have choice to invest in many kinds of alternative investments. For example,  real estate (e.g., rentals, commercial real estate, mobile homes etc.), notes-both secured and unsecured, precious metals such as gold (bars or coins), and  silver, private equity, tax lien certificates, currency trading, equities and more.

You are Named Trustee of the Plan when you open Solo 401k

By naming you as trustee of your Solo 401k plan, you have checkbook control, resulting in opportunity to  process  investment purchases quickly and timely. By designating you as trustee, you make all investment decisions and have option to custody the Solo 401k alternative investments.

Solo 401k Checkbook control at bank of your choosing or by using brokerage account

Since you are named trustee of your Solo 401k,  when you open solo 401k with checkbook control  all alternative investments can be processed from a brokerage account at Ameritrade, Fidelity or Charles Schwab. Of course, you also have option of opening checking account at local bank in the Solo 401k name. Note that in both of these scenarios you have to go through a Solo 401k provider whose documents allow for checkbook control before proceeding.

Contact http://mysolo401k.net/ as our documents allow for alternative investments, and we have the necessary forms for establishing a brokerage account with checkbook control.

Open Self-Directed Solo 401k brokerage account with Checkbook Control from MySolo401k.net at TD Ameritrade

By using MySolo401k.net plan document for Self-Directed Solo 401k (Solo 401k), you now have option of establishing a brokerage account at TD Ameritrade with checkbook control, for investing in not only equities but also alternative investments such as real estate, notes, trust deeds, precious metals (gold), private companies (LLC, Corporation, etc.), as well as making a participant loan (borrow from Solo 401k). Of course, you still have option of opening checking account for Solo 401k at your local bank if you would like.

A TD Ameritrade brokerage account for your Solo 401k using MySolo401k.net plan document is ideal if you already have a TD Ameritrade Solo 401k  but it does not allow you to borrow from it (process a participant loan) and/or restricts you to only investing in equities.

If you are looking to invest you Solo 401k in alternative investments such as real estate, gold, private investments, notes, etc., contact MySolo401k.net to have your TD Ameritrade Solo 401k updated to a Self-Directed Solo 401k using MySolo401k.net plan document. The result will be freedom to invest in what you want as well as having option to borrow from Solo 401k. 

Here's how the process of opening Self-Directed Solo 401k at TD Ameritrade using MySolo401k.net trust/plan document works:

Existing Plan at TD Ameritrade

I already have Plan at Ameritrade (e.g., Individual 401k, Solo 401k, KEOGH, Profit Sharing).  MySolo401k.net will supply you with our Solo 401k trust document, TD Ameritrade Trust Account Application, and TD Ameritrade Checking Application.

Then you will submit above forms to Ameritrade and instruct them to internally transfer you existing plan to your new TD Ameritrade Solo 401k brokerage account from MySolo401k.net.

NOTE that a transfer form is not necessary since your existing plan will be transferred internally to new Self-Directed Solo 401k plan using MySolo401k.net trust documents.

Existing IRA at Ameritrade

If you already have existing IRA at TD Ameritrade (e.g., Traditional, SEP, or SIMPLE IRA), MySolo401k.net will provide you with our Solo 401k trust document, TD Ameritrade Trust Account Application, TD Ameritrade Checking Application, and our Transfer form.

You will then submit above forms to TD Ameritrade and your existing IRA will be transferred internally to your new Self-Directed Solo 401k from MySolo401k.net.

After your Self-Directed Solo 401k is established using MySolo401k.net plan/trust documents, all administration of the Self-Directed Solo 401k plan is handled by you as Trustee of the plan, with MySolo401k.net assistance (e.g., we offer free preparation for Form 5500 EZ and Form 1099-R as well as Solo 401k participant loan docs). We will also assign you your own personal Solo 401k Expert for all your technical questions and communications.

To learn more about converting your existing TD Ameritrade Solo 401k or IRA to a self-directed Solo 401k from MySolo401k.net, please call us at 800.489.7571 or e-mail us at info@mysolo401k.net

Process of investing in precious metals: Gold Solo 401k | Self Directed Solo 401k | Solo 401k

As long as Code 408(m) is followed when investing Solo 401k (Gold Solo 401k) funds in precious metals such as Gold (gold bars and gold coins), investing in precious metals with self-directed solo 401k may be right for you.  

Follow these steps when purchasing precious metals with Solo 401k (Gold Solo 401k) and you will be on your way to successfully following the rules applicable to metals under IRS Code 408(m). 

Step 1: Locate a Precious Metals dealer: Below are some links of brands acceptable in Self-Directed Solo 401k. 

COMEX:

Gold: http://www.cmegroup.com/trading/metals/gold-brands.html

Silver: http://www.cmegroup.com/trading/metals/silver-brands.html

NYMEX:

Palladium: http://www.cmegroup.com/trading/metals/palladium-brands.html

Platinum: http://www.cmegroup.com/trading/metals/platinum-brands.html

TOCOM

All Metals: http://www.tocom.or.jp/guide/brand/index.html

LPPM:

Palladium: http://www.lppm.com/lists.aspx?type=pd

Platinum: http://www.lppm.com/lists.aspx?type=pt

LBMA

Gold: http://www.lbma.org.uk/pages/index.cfm?page_id=29&title=gold_list

Silver: http://www.lbma.org.uk/pages/index.cfm?page_id=30&title=silver_list

Step 2: As trustee of the Solo 401k (Gold Solo 401k), decide on metals to be held in your Self-Directed Solo 401k.

Step 3: Have the Precious Metals dealer prepare an invoice under the name of your Solo 401k FBO your name as trustee.

Step 4: Write check from Solo 401k checking account made payable to precious metals dealer and submit funds directly to Precious Metal dealer with instructions of where to deliver metals.

Step 5: The dealer will then send Gold to either:

• You as Trustee of Solo 401k plan for storage in safety deposit box, or

• Storage facility such as Delaware Depository Service Company 

Step 6. Lastly, make sure you are not purchasing disallowed metals. Read our blog regarding negative consequences of investing in disallowed metals:

http://www.mysolo401k.net/Blog-for-MySolo401k.html?entry=negative-consequences-of-investing-solo

Additional Information: Read following blog regarding acceptable metals for Solo 401k.

http://mysolo401k.net/Blog-for-MySolo401k.html?entry=acceptable-precious-metals-in-solo

How to Open Self-Directed Solo 401k at Charles Schwab from MySolo401k.net

You have other options besides establishing checking account at your local bank for Self-Directed Solo 401k. Specifically, by using MySolo401k.net plan document, you can open brokerage account with checkbook control at Charles Schwab for your Solo 401k. You will still have freedom to invest in alternative investments such as notes, real estate, and gold just to name a few. What’s more, you can also invest in stocks and mutual funds through the Charles Schwab brokerage account, and have option to take a participant loan (borrow from Solo 401k).

Consider updating your existing Charles Schwab Solo 401k plan, Individual 401k, Solo k, Solo 401k, PSP if it only permits you to invest in equities to a self-directed solo 401k from MySolo401k.net. This way you can invest in what you want and have option to take a participant loan. 

Here's how the process of opening Self-Directed Solo 401k at Charles Schwab using MySolo401k.net trust/plan document works:

Current Plan at Charles Schwab

If you already have a Plan at Charles Schwab (e.g., Individual 401k, Solo 401k, KEOGH, Profit Sharing), MySolo401k.net will provide you with our Solo 401k trust document, Schwab Master Account Application, Participant Application Form, and Schwab Check writing Form.

Next, you will submit above forms to Charles Schwab and your existing plan will be transferred internally to your new Self-Directed Solo 401k.

NOTE that a transfer form is not necessary since your existing plan will be transferred internally to new Self-Directed Solo 401k plan using MySolo401k.net trust documents. 

Current IRA at Charles Schwab

If you already have existing IRA at Charles Schwab (e.g., Traditional, SEP, or SIMPLE IRA), MySolo401k.net will provide you with our Solo 401k trust document, Schwab Master Account Application, Participant Application Form, Schwab Check Writing Form, and our Transfer form.

You will then submit above forms to Charles Schwab and your existing IRA will be transferred internally to your new Self-Directed Solo 401k.

After your Self-Directed Solo 401k is established using MySolo401k.net plan/trust documents, all administration of the Self-Directed Solo 401k plan is handled by you as Trustee of the plan, with MySolo401k.net assistance (e.g., we offer free preparation for Form 5500 EZ and Form 1099-R as well as Solo 401k participant loan docs). We will also assign you your own personal Solo 401k Expert for all your technical questions and communications.

To learn more about converting your existing Charles Schwab Solo 401k or IRA to a self-directed Solo 401k from MySolo401k.net, please call us at 800.489.7571 or e-mail us at info@mysolo401k.net.

Open Self-Directed Solo 401k at Fidelity Using MySolo401k.net Plan Document

Self-Directed Solo 401k from MySolo401k.net allows you to open a Fidelity brokerage (Fidelity Solo 401k) account with checkbook feature. This is accomplished by using MySolo401k.net plan/trust document because our plan names you trustee of the solo 401k and allows for investing in alternative investments such as real estate, promissory notes, precious metals, private placements, etc., in addition to stocks and mutual funds.

If you have an existing plan such as an Individual 401k, Solo k, Solo 401k, PSP already at Fidelity that only permits you to invest in equities, consider a self-directed solo 401k from MySolo401k.net. We will assist you in establishing a Self-Directed Solo 401k at Fidelity (Fidelity Solo 401k) using MySolo401k.net plan document.

Here's how the process of opening Self-Directed Solo 401k at Fidelity using MySolo401k.net trust/plan document works:

Existing Plan at Fidelity

If you already have existing Plan at Fidelity (e.g., Individual 401k, Solo 401k, KEOGH, Profit Sharing), we will provide you with our Solo 401k trust document, Fidelity Retirement Account Application, and Fidelity Check writing Form.

You will then submit above forms to Fidelity and your existing plan will be transferred internally to your new Self-Directed Solo 401k.

NOTE that a transfer form is not necessary since your existing plan will be transferred internally to new Self-Directed Solo 401k plan using MySolo401k.net trust documents.

Existing IRA at Fidelity

If you already have existing IRA at Fidelity (e.g., Traditional, SEP, or SIMPLE IRA), we will provide you with our Solo 401k trust document, Fidelity Retirement Account Application, Fidelity Check writing Form, and our Transfer form.

You will then submit above forms to Fidelity and your existing IRA will be transferred internally to your new Self-Directed Solo 401k

After your Self-Directed Solo 401k is established using MySolo401k.net plan/trust documents, all administration of the Self-Directed Solo 401k plan is handled by you as Trustee of the plan, with MySolo401k.net assistance (e.g., we offer free preparation for Form 5500 EZ and Form 1099-R as well as Solo 401k participant loan docs).

Bankruptcy and Creditors’ Claims: Self-Directed Solo 401k | Solo 401k

When you as debtor declare bankruptcy, the majority of your assets become part of the bankruptcy estate. The bankruptcy estate then appoints a trustee to manage the bankruptcy estate, who uses assets from the bankruptcy estate to pay off your creditors. However, thanks to the Federal Bankruptcy Code, Self-Directed Solo 401k (also referred by other names such as Solo 401k, Solo k and Individual 401k) is excluded (that is, not subject to creditors claims) from the bankruptcy estate.

Congress passed in 2005 legislation that exempts qualified retirement plan (QRP) assets from bankruptcy estates under federal law (the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005). Further, ERISA (Employee Retirement Income Security Act of 1974) as well as IRC (Internal Revenue Code) detail that in order for a qualified plan such as a self-directed solo 401k to qualify as a retirement plan, it must list anti-alienation language. See ERISA Sec. 206(d) and IRC Sec. 401(a)(13).  

Court Case Supporting Exclusion from Creditors

Supreme Court case, Patterson V. Shumate--The Supreme Court ruled that anti-alienation provisions in the defendant's "ERISA-qualified" retirement plan had to be given effect under the bankruptcy rules. Since ERISA prohibits the assigning of benefits--even to a bankruptcy trustee, the retirement assets in that case were excluded from the bankruptcy estate.

The Bankruptcy Act of 2005

The passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 exempts rather than excludes under federal law, assets in employer-sponsored retirement plans established under IRC Secs. 401, 403, 408A, 414, 457, or 501(a). This law permits a debtor to choose to exempt employer-sponsored retirement plan assets from his or her bankruptcy estate, regardless of whether state or federal bankruptcy law is followed for purposes of exempting assets from the bankruptcy estate.

Solo 401k Plan Participant Loans Not Forgiven

Generally, in a bankruptcy proceeding, certain debtor obligations may be discharged (i.e., forgiven). But plan loans under this exemption are no dischargeable (11 U.S.C. Sec. 362(b)). This means that the loan is not forgiven. Instead, the loan must be either paid back or the outstanding balance treated as a taxable distribution.    

Rules/Handling IRS Levy Against: Self-Directed Solo 401k | Individual 401k

We all know that the IRS is responsible for collecting federal taxes; however, some of us may not be aware that if you do not pay your federal taxes the IRS may be able to levy (confiscate) your retirement funds including Solo 401k after satisfying timing and notice requirements.

The general rule or understanding in the retirement account industry regarding the IRS position on tax levies against retirement accounts is that a plan is not required to honor an IRS levy until the retirement account participant becomes eligible for a distribution from the plan (e.g., Self-Directed Solo 401k plan).  

This is supported by the following internal memorandums issued by the IRS whereby the IRS recognized the plan’s right to delay the distribution when the participant is not eligible to legally make/begin taking distributions.

• FSA 199930039 (Field Service Advice memorandum) and

• CCA 199936042 (Chief Counsel Advice memorandum)

The levy still attaches: The fact that the plan is not required to proceed with the levy until the Solo 401k participant is eligible to make a distribution does not mean that the levy is invalid before the plan funds are eligible for distribution. Instead, pursuant to IRC 6331 the levy sticks until distributions from the plan can legally commence. See Rev. Rul. 55-210, 1955-1 C.B. 544, which details the tax lien attaches to right to receive future benefits and that just one notice of levy is required to be served to have access to distributions form the plan once they qualify for distribution.

Self-Directed Solo 401k Contribution Deduction Facts (things to consider when taking tax deduction on your tax return for solo 401k yearly contribution amount)

IRC Sec. 404 allows employer (including self employed) to take a tax deduction for contributions made to a Solo 401k plan that do not exceed 25 percent of compensation (IRC Sec. 404(a)(3). This deduction is in addition to the salary deferral contribution deduction amount which is $16,500 for tax year 2011 and $17,000 for tax year 2012.

However, before taking the employer tax deduction (the 25% amount), first apply the IRC Sec. 401(a)(17) compensation cap which equals $245,000 for 2011 and $250,000 for 2012.  In other words, the compensation cap--the maximum amount of compensation that can be used to calculate your Solo 401k contribution amount--cannot exceed the aforementioned ceiling amounts. 

IRC Sec. 404(a)(6) permits the employer tax deduction (the 25% portion) even if the contribution for the immediate prior tax year is made in the following tax year as long as it's made before an employer's tax return due date plus (plus extensions).

A common false assumption about profit sharing deduction (the 25% contribution portion) limit (keep in mind that Solo 401k is made up of two types of contributions--profit sharing and salary deferral contributions) is that the 25 percent deduction limit applies on a per participant basis. However, the deduction limit applies on the basis of the aggregate eligible compensation earned by all Solo 401k plan participants (Solo 401k only allows for maximum of two participants--number of people who can contribute/participate to the plan) during   the employer's (self employed) tax year.

When calculating profit sharing contribution amount for deduction purposes, effective January 1, 2002 and after, compensation used to determine the employer's (self employed) maximum deductible contribution to a plan (including a Solo 401k plan) includes salary deferrals (the $16,500 for 2011 or $17,000 for 2012 contribution portion)

EXAMPLE: John and his wife sally are the only owners and employees of The Computer Company, a corporation, in aggregate they had $200,000 in income for 2011 of which they both contributed a combined total of $33,000 ($16,500 each) as salary deferral contribution to their solo 401k. When calculating their maximum employer contribution, they are not required to reduce the maximum deductible profit sharing deductible contribution by the salary deferral amount of $33,000.

In order to deduct contributions for a given tax year, the business owner is required to make contribution to Solo 401k by employer's tax return due date, including extensions as outlined in IRC Sec. 404(a)((6).

When calculating the 25 percent (employer contribution portion) Solo 401k contribution limit, the total employer (25%) contribution amount must be divided by the total compensation paid during the self employer tax year to all employees (note that Solo 401k only allows for maximum of two participants, usually husband and wife or two business partners) eligible to participate in the Solo 401k plan.

The compensation definition used for determining a self employer maximum deductible contribution includes salary deferrals [the $16,500 for 2011 or $17,000 for 2012].

Solo 401k Contribution Limits

Solo 401k | Solo 401k Contributions | Solo 401k Contribution Limits 


Periodic or Lump Sum: Annual Solo 401k contributions can be made throughout the plan year or lump sum by the self employer tax return due date plus extensions (generally October 15)

IRC Sec. 415(c)(1)(A) covers contribution limit for solo 401k. For  tax year 2011, the maximum contribution limit is $49,000 and $50,000 for 2012.

The contribution limits apply separately to each Solo 401k participant and are made up of salary deferral and employer profit sharing contributions.

The section 415 limits are determined on a limitation year basis. The "limitation year" can be defined by the plan as any 12-month period.

Catch-up contributions can be made to Solo 401k by each participant in accordance with Treas. Reg. 1.414 (v)-1, and to qualify for catch-up contribution, the Solo 401k participant must be age 50 or older. So if you turn 50 by the end of the year, you are considered eligible to make a catch-up contribution because you are deemed to have reached age 50 as of January 1 of that year. 

SPECIAL RULE: Permitted to maximize deferrals to both 457 and 401k plans, including Solo 401k.

457 Plan is a type of retirement plan for governmental employers.

IRS Information letter 2001-0232 contains language that allows you to defer the maximum salary deferral amount [up to $17,000 for tax year 2012] to an IRC Sec. 457 plan and up to an additional $17,000 to a 401k plan, including a Solo 401k; of course, you first have to meet the Solo 401k eligibility requirements.

Effective January, 2006, Roth Solo 401k contributions may be made to 401k including Solo 401k. See Treas. Reg. 1.401(k)-1(f) of the final 401 (k) and 4019m) regulations.

When calculating profit sharing contribution amount (25% profit sharing amount), effective January 1, 2002 and after, compensation used to calculate the employer's maximum contribution [$49,00 for 2011 and $50,000 for 2012] to a plan (including a Solo 401k plan) includes salary deferrals [$16, 500 for 2011 and $17,000 for 2012].  Put simply, when calculating profit sharing contribution portion do not subtract the salary deferral [$17,000 for 2012] figure as it will reduce the allowable salary deferral limit.

The Annual Solo 401k contribution limit is not cumulative. For example, if you do not make your full annual contribution for a particular year, you cannot make it up in the following year's contribution.  Each year a participant's annual contribution is limited to the IRC 415(c) [ $49,000 for 2011 and $50,000 for 2012] limit in effect for such year.

Rollovers and transfers are not included in the annual additions/contributions category. Also, direct transfers from one retirement plan to a Solo 401k plan are not annual additions. Rollovers from IRAs (including direct rollovers) also do not fall under the annual additions category. See Treas. Reg.1.415(c)-1(b)(3)(i).

Loan repayments are not considered annual additions/contributions. Solo 401k participant Loan payments made by the participant for repayment of a participant loan are not annual additions. See Treas. Reg. 1.415(c)-1(b)(3). Reason being, the participant is paying back money that he or she borrowed from the solo 401k plan, and the amount borrowed was part of the Solo 401k account balance that you had already contributed under the section 415 limits or rolled/transferred over. You are simply repaying amounts to the Solo 401k account.

Contributions other than cash also fall under the annual additions/contributions category. A contribution of property (e.g., real estate) by the employer or Solo 401k participant is accounted for at fair market value to ascertain the amount of annual additions attributable to the contributions. See Treas. Reg. 1.415(c)-1(b)(5). However, thread carefully because if the property rules are not followed, the contribution might result in a prohibited transaction under IRC 4975. For more information, See Commissioner v. Keystone Consolidated Industries, Inc., 113 S.Ct. 2006 (1993) and DOL Reg. 2509.94-3 (Interpretive Bulletin 94-3).

IRC 404(a)(8) contains special rules for applying the deduction limits to plans (e.g., Solo 401k plan) that cover at least one self-employed individual.

IRC 401(c)(1) defines self-employed individual

IRC 401 (c)(2) defines deduction limits based on compensation of self-employed.

IRC Sec. 404 defines profit sharing deduction limits (employer contributions)

IRC Sec. 415 defines salary deferral limits (employee contributions)

IRC 401(c)(1) defines owner-employee as an employee who owns all of a business or, if a partnership, more than 10 percent of partnership or its profits.