Information on Debt Financing/Non-Recourse Loan Solo 401k

Now that you have made decision to open solo401k, you next need to determine if you will invest solo 401k in real estate and if debt financing will be incorporated. This is why solo 401k is sometimes referred as debt financing solo 401k or non-recourse solo 401k.  We have provided the following information regarding the use of debt financing or non-recourse loan option after you open solo 40k.

• Debt-financing solo 401k means that your Solo 401k can take a loan/ borrow from a bank or investor for use in real estate purchase.

• Use of debt financing results in more available cash for investing solo 401k in real estate.

• The term non-recourse keeps the lender from coming after your personal assets or any other assets of your solo 401k in the event solo 401k defaults in making non-recourse loan payments.

• If loan default or foreclosure takes place, the lender may only go after the real-estate property that was purchased with the non-recourse loan proceeds.

• Because the property is the only asset attached to the non-recourse loan, only these funds can be used for collateral.

• Debt financing for 401k became popular in the early 200s.

• Non-recourse loans offered not only available through banks but also through private investors.

• Non-recourse loan term is typically for 15 to 25 years if offered by bank, and same or less if offered by private investor.

• Debt financing frees up money in Solo 401k that can therefore be invested in additional investments.

• Non-recourse loan differs from conventional loan from a bank in that the following does not apply since loan is to Solo 401k instead of you:

1. W-2’s are not reviewed

1. Tax returns are not reviewed

1. Only solo 401k assets instead of personal assets are reviewed

• Non-recourse loan is to Solo 401k, therefore loan will not show-up on your credit report and your social security number is not used. As a result, it’s important to list the Solo 401k EIN (employer identification number) on solo 401k non-recourse loan documents.

Background and History of Self-Employed 401k

Commonly called Solo 401k Plan, Individual 401k Plan or Self-Directed 401k, the IRS created self-employed 401k in 1974 with the passage of ERISA. Therefore, self-employed 401k or Solo 401k is quite old. You see, a self-employed 401k is a traditional 401k but as the name implies for the self-employed and is thus subject to the same rules as all other 401ks.

Further, with the passage of EGTRRA in 2002 Solo 401k or self-employed 401k was brought into the spotlight because EGTRRA tremendously increased the amount that could be contributed to the 401k.

Specifically, EGTRRA promulgated that employee contributions are not included in the deduction limit calculation. Instead, just the employer contributions (profit sharing amount) are limited to the less than or equal to 25% of the employees’ (self-employed) compensation. The employee contributions can be made on top of the employer contributions.

Before the passage of EGTRRA, the employer profit-sharing contributions were combined with the employee deferral when determining the maximum deduction limit of 25% of employee’s compensation, thereby reducing the maximum annual contribution amount.

Solo 401k or Individual 401k is for maximum of 2 individuals

Besides only being available to the self-employed,  if you want to  open Solo 401k maximum of two individuals can participate.

Generally when two participants participate in same solo 401k plan, it is usually both spouses or both business partners. However, to participate each participant must separately generate self-employment income from same business. Therefore, if only one spouse or business partner generates self-employment income, only that spouse can participate in solo 401k.

Separate Checking Accounts Necessary--one for each participant 

If both individuals qualify for same solo 401k plan and decide to open solo 401k, separate checking accounts are necessary for each participant. Subsequently each participant transfers/rollovers other IRAs or retirement plans to his or her respective sub account/checking account.

Here's how checking accounts would be titled

For example, let's say Jan and Jim Everest are both self employed through same company and decide to open solo 401k (ABC Solo 401k Trust) 

As a result, two checking accounts--one for Jan and another for Jim--would need to be opened.

The the title for each Solo 401k checking account  would read as follows:

Checking account 1 for Participant Jim: ABC Solo 401k Trust, Jim Everest, Trustee

Checking account 2 for Participant Jane: ABC Solo 401k Trust, Jane Everest,Trustee

What is an IRS Solo 401k Plan?

Often called IRS Solo 401k because the IRS ultimately approves the Solo 401k plan document by issuing IRS opinion letter, IRS Solo 401k is just another name used to refer to Solo 401k.

Many also refer to Solo 401k as IRS Solo 401k since the IRS has issued official language through its website that allows the business owner to serve as trustee of his or her own Solo 401k plan.

Following is language from IRS website detailing trustee responsibilities:

IRS Language  

"Trusts and trustees. 401(k) plans are funded through a trust established to hold and invest the plan’s assets. At least one trustee is appointed to have responsibility for the activities of the trust and its assets. This is a serious responsibility with considerable potential for liability. Trustees might include the business owner, an employee, or a financial or trust institution."

If you are interested in viewing above trustee language, below is IRS link. 

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

Solo 401k Lawyer or Attorney Not Necessary

Most financial professionals can offer solo 401k services. For example, professionals such as attorneys/lawyers, accountants, financial advisors, and qualified plan administrators can be solo 401k providers.

What you should really consider when you are ready to open solo 401k is how long the solo 401k provider has been in the business of administering and providing solo 401k services. This is especially true if you are considering investing Solo 401k in real estate, precious metals, notes, and private investments as not all professionals including lawyers and attorneys have been trained on the rules and regulations surrounding retirement plans, let along the rules of investing solo 401k plan in alternative investments. This is specially the case if you are looking for guidance relating to alternative investments even if you are not necessarily looking for investment advice but just confirmation that your potential alternative investment conforms to the Solo 401k regulations.

Lastly, while it is a good marketing tactic used by certain Self-Directed Solo 401k providers, you don’t need to be an attorney or lawyer to provide Solo 401k with checkbook control. Reason being, the IRS ultimately approves the Solo 401k document not the solo 401k provider; hence why the solo 401k provider is required to provide you with the IRS approval letter when you open solo 401k.

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.