The Practical Self-Directed Solo 401k Q&A - Your questions answered in plain English.

A self-directed 401k FAQ giving clear, usable, answers, for when the rubber-meets-the-road. No legal-speak.

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The most common question is: ‘Is a Solo 401k a kind of IRA?’
No, it’s not. ...and that’s great news for your safety, investment flexibility, and more. You can borrow from a Solo 401k, share one with family or business partners, contribute (much) more to it, and have a host of protections against mistakes.

While the bottomline is they are much safer, cheaper, and flexible; here’s a link to a side-by-side of the Solo 401k vs. IRA bullet points (and code references) if you want.

The next question is: ‘Can I even use this?’
About 2/3 of our visitors can have a Solo401k, and can rollover almost any kind of IRA or old retirement account money they have into them.

Since nearly any kind of retirement account can be moved over to a Solo 401k, it’s easier to say which can’t:

  • Inherited IRAs
  • Roth IRAs

That’s it. Everything else can move over and be self directed. Have a SEP from 1986? A KEOGH from time immortal? Great. Even money from a current employer plan can potentially be moved, esp. if you have us help them navigate the process.

So who can’t have a Solo 401k?
The owners of a business with full-time employees over the age of 21 can’t reasonably have one unless they provide a similar plan (and contributions) to their employees. Virtually anyone else can, or can easily take steps to, have one. No current business or self employment income required.

Punchline: You can safely and effectively self-direct your own retirement.
You can stop stock market roller coaster. Invest in what you can see-and-touch. Invest locally and in people you’ve talked and shaken hands with or help build homes overseas. Kickstart your own business. You just need quality information and support (which we happily provide).

Listen. Real estate is huge, and a core reason people get any kind of self-directed retirement account at all. Do yourself a favor and read over this page. Do that; then chat/email/call with any questions at all.

We’d do a bunch of little ‘what-about-this’ Q-and-A here but if you’re interested in real estate you owe it to yourself to set some time aside and read our full write-up on it. There’s a ton of great information and it’s a very interesting area you want the full picture on.

First things to know:

  • Any metal allowed in an IRA is also allowed in a Solo 401k.
  • Solo 401k plans can invest in additional coins/bars IRAs can’t.
  • While nearly all ‘bulk’ gold and silver are allowed, ‘numismatic’ coins or collectibles are still strictly off limits.
  • You can store the metals nearly anywhere, anyhow, you want.

Since metals investing is one of our favorite things (and a great reason to go with a Solo 401k over an IRA) we’ve got a write-up all about metals investing.

What about 5500 filing requirements? I hear the Solo 401k is harder to maintain / more complex / gives more info to the government than an IRA.

We’ve heard it to; but it’s not true. Here’s the deal:

Checkbook-controlled IRAs take much more work to maintain than regular IRAs. The Solo 401k, for most people, just needs its documents to be kept current (a job we handle) and an accurate record of money in and out. That’s it.

If your Solo 401k has more than $250,000 in assets you’re going to need to file either a 5500-SF (online) or 5500-EZ (paper). It’s a simple reporting (not tax) form that’ll take you approximately 15 minutes to do each year. We’ve written about it and given an example 5500-EZ here.

What about if the 401k buys a business, is that when a ‘990’ is needed?

Just like if an IRA buys a business the 401k that owns one (like a car wash or Subway or something) will have that, specific, business income subject to ‘UBIT’ taxation (‘Unrelated business income tax’). It doesn’t matter if it’s a Roth IRA or the Roth side of your Solo 401k. If your retirement account owns an active business it’s going to need to file a 990 and pay taxes on those gains.

This is a huge ‘gotcha’ to many self-directed IRA and 401k owners. It’s frustrating (esp. to Roth accounts), but corporate income taxes were paid on your IRA’s dividend income before it got to your IRA. This is like that - only before you didn’t see the tax being paid and now you will.

Just factor the tax bill (which is high... top trust rates) before deciding if an active business is the right choice for you and bring in your tax advisor to ensure the tax bill is as small as legally possible.

After all; if the business is making 25% ROI and your retirement pays 40% tax, that’d still be a 15% ROI which seems to be about 100% more than most peoples’ retirement accounts make in the stock market.

What about investing outside the US?

Over the last 20 years investing internationally has gotten easier from the perspective of due diligence; but much harder when it comes to reporting paperwork. While we think there’s value in working with a financial professional in many cases; it is absolutely imperative when investing in assets outside the US inside, or outside, of a retirement account.

If you already are familiar with US reporting and the tax matters for the investment’s host nation you won’t find the retirement account changes anything (sadly). The reporting for the US, and taxes to the host nation are are likely unchanged.

If you aren’t familiar with the requirements the US has for reporting assorted investments and entities outside the US (and want to be); send us an email covering what you’d like to do and we’ll line out related reading and specialists.

How long does it take to be able to use?

Your Solo 401k (also called a ‘Plan’) will be ready to use in less than two business days. That lets you sign investment contracts, make real estate agreements, make Roth or Traditional contributions to the Plan, and more.

How long does it take to have my money ready to invest?

If it’s a new contribution, usually the day after you deposit it at many banks. If you’re moving the money from an old IRA or 401k or such, usually it takes a week or so for the old provider to get your request, process it, and get the funds heading to your new Plan.

My Solo 401k can bank at any bank or brokerage?

No. ‘Nearly any’ is more accurate. If one bank or brokerage does say no, there are 10 more willing to say yes.

We’ve made our material clear and easy to follow. We’ve written out the answers to the questions banks/brokerages ask in a handy sheet you can just give them. Our clients easily opening checking accounts for their Solo 401k at national, regional, and local banks and brokerages all over the nation (and beyond) quickly and with much less stress.

Who has access to my money?

You and anyone you choose to give access.

We create a Plan for you. We don’t ever know even where you bank or what is in your account unless you tell us. Whatever bank or brokerage you use will only know about the balance in that specific account. These are the most private, and readily secured, retirement structures available.