Dmitriy Fomichenko

About Dmitriy Fomichenko

Dmitriy is the founder and president of Sense Financial Services LLC, boutique financial firm specializing in self-directed retirement accounts with checkbook control. He began his career in financial planning and real estate investing in 2000. He owns multiple investment properties in various states and is a licensed California Real Estate Broker. Over the years, he has instructed hundreds of investment and financial planning seminars and has mentored thousands of investors.

Posts by Dmitriy Fomichenko:

October 24 2013

Financing for asset purchase in Solo 401k

Dmitriy Fomichenko Investing, Non-Recourse Financing

If I am investing in real estate with my Solo 401k, but don’t have enough funds in my Solo 401k, what are my options?

Funds can be added to your plan via:

Rolling over additional funds from another retirement account
Contributing to the plan from your compensation from the adopting business

Or, financing can be obtained by your Solo 401k for its investments, but it must be a non-recourse loan from a non-disqualified party.

What is non-recourse financing?

The loan is secured by the asset itself
You, as the 401k participant, do not personally guarantee the loan
The loan is also not secured by the other assets of the 401k. The 401k cannot serve as collateral for the loan.
The lender has no recourse in the event of default, other than to foreclose on the property. The lender can only acquire the asset on which the loan was made.

How is non-recourse financing obtained?

The 401k is applying for and receiving the loan
The 401k pays back the loan, using funds of the 401k
Personal funds cannot be used to repay the loan
A non-recourse loan can be taken from a non-disqualified party (e.g. a non-disqualified relative, a non-disqualified owner who is willing to owner-finance the property) or a non-recourse lender

Prohibited transactions and disqualified persons

Non-recourse lenders

October 24 2013

Distributions from the Solo 401k

Dmitriy Fomichenko Distributions, Maintenance

Can I take a distribution from my Solo 401k? Will I owe taxes? At what age can I distribute from my Solo 401k without penalty?

Distributing funds out of the Solo 401k is called an “in-service distribution” when the Solo 401k plan and its adopting business are still active.

Determine your eligibility to take the distribution

These funds must first be eligible for an in-service distribution. The ability to take an in-service distribution from the Solo 401k is based on the type of funds being distributed and certain requirements.

Rolling funds out of the Solo 401k

In general, you are eligible to take a distribution from your Solo 401k once you reach the age of 59 ½
In general, distributions from your Solo 401k are taxable, unless you are taking distributions from a Roth account
Early distributions, which are taken before age 59 ½, may incur a penalty, in addition to taxes

Take the distribution from your Solo 401k

You will be the one distributing the assets from your Solo 401k

Since you have checkbook control over your Solo 401k, you will move the distribution funds out of your Solo 401k to your personal account.

Document the distribution

As plan administrator, it is your responsibility to keep records of all Solo 401k transactions, including distributions.

You must document the distribution using the distribution form
The form must be dated with the date the distribution was taken
The completed and signed distribution form is kept in your file only as Plan Administrator of your Solo 401k. These forms are part of your recordkeeping and are not submitted to anyone else.

Forms to Administer Solo 401k Plan

Withhold/pay the taxes on the distribution

As plan administrator, it is also your responsibility to withhold and pay the taxes on the distribution.

Withhold the taxes and remit them using the Electronic Federal Tax Payment System (EFTPS) method

The EFTPS is a free service provided by the US Department of Treasury:

EFTPS: The Electronic Federal Tax Payment System

Enroll in the EFTPS system at: www.eftps.gov
Sign up and then make all your withholdings in the quarter in which you make a distribution. Taxes must be paid electronically.
Enroll as a "business" and use the name and EIN of the 401k

For your records, an Electronic Funds Transfer (EFT) Trace Number will be provided with each successful payment. The number can be used as a receipt or to trace the payment.

The taxes must be paid by the 15th of the month following the date of the Solo 401k distribution.

Or, if you do not withhold the mandatory 20% tax at the time of distribution, you would then pay the taxes with personal funds at the time of tax return

Either way, 20% tax withholding is mandatory.

Withholding 20% Tax on Distribution

Report the distribution to the IRS

You are responsible for reporting any Solo 401k distributions by each form's deadlines.

File Form 945 by January 31st to report and reconcile what you have withheld

Form 945 Instructions

See "Where To File" for information on how to file Form 945 electronically or via paper form. Only one Form 945 should be filed per year.

File Form 1099-R for the distribution itself by January 31st (payee/recipient copy) and by March 31st (electronic copy to the IRS)

Form 1099-R Instructions

Additional information

For more information on required minimum distributions (RMDs)

Required minimum distributions

https://www.irs.gov/retirement-plans/plan-participant-employee/401k-resource-guide-plan-participants-general-distribution-rules
Consult with your CPA or tax advisor for more information on the effect of distributions from your Solo 401k.

October 24 2013

Living trust as primary beneficiary

Dmitriy Fomichenko Maintenance, Plan Documents, Setup

Is there a way to make my living trust the primary beneficiary of my Solo 401k?

Yes. On the beneficiary designation form, you can name your living trust as the primary beneficiary.

October 23 2013

Active vs. passive income

Dmitriy Fomichenko Adopting Employer, Contributions, Setup, Solo 401k Eligibility

What is the difference between active, or earned, income and passive income?

How can I determine if I have earned income?

Can I contribute my investment income to the Solo 401k?

Active, or earned, income is earned from your business activity. Passive income comes from investments that you hold.

Active/earned income

Your eligibility for the Solo 401k is based on having an active self-employment business
Contributions to your Solo 401k can only be made from your compensation from your active self-employment business
Compensation is active/earned income

Defining compensation

The IRS describes types of active/earned income below:

https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/earned-income

Passive income

Passive income cannot be contributed to your Solo 401k
Some/all of your investment income can potentially be designated as earned income under the direction of your CPA. Please consult with your CPA to determine if your management or administrative work for your investments can be designated this way.

October 23 2013

Contributing to Solo 401k from multiple companies

Dmitriy Fomichenko Adopting Employer, Contributions, Funding, Setup

I want to be able to contribute to my Solo 401k from multiple companies to maximize the contribution potential. How can I do this?

Contributions to your Solo 401k can only be made from the adopting business of the plan. Check your plan documents for which adopting business is listed.

If you have multiple companies, you will want to choose the company that generates the most income to be the adopting business of the plan. Or, you may want to consult with your CPA on structuring your companies with a holding company:

Set up a holding company for the separate companies, and
Make that holding company the adopting business of the Solo 401k

Holding company

The holding company is established to own the other companies
It does not do business itself

Subsidiary companies

The holding company owns the other companies, which are subsidiary companies
The subsidiary companies conduct business
These are pass-through entities (i.e. they don't pay taxation at their own level, the earning is passed through to the parent/holding company)
If the subsidiary companies are single-member LLCs, for example, then the member would be the parent/holding company.

Your Solo 401k will need to list the holding company as the adopting business of the plan, which may require an amendment if your plan was already established with a different adopting business.

October 23 2013

Having a current employer’s 401k plan and a Solo 401k plan

Dmitriy Fomichenko Contributions, Funding

Does my current employer’s 401k plan have any effect on my Solo 401k plan? Will my contribution limit be affected?

The employee contribution maximum is per person, not per plan.

In other words, your ability to make the maximum employee contribution to your Solo 401k is affected by the employee contribution you have made to your current employer's 401k plan.

For example, if you under the age of 50:

Your employee contribution maximum is $23,500 for 2025
If you contribute $10,000 to your current employer’s 401k plan for 2025, then
You can only contribute up to $13,500 to your Solo 401k plan as an employee contribution

If you have reached the employee contribution maximum in your current employer's 401k plan, you will not be able to make an additional, employee contribution to your Solo 401k.

Note that your Solo 401k also allows you to make employer contributions. You can make an employer contribution to your Solo 401k even if you have reached the maximum employee contribution limit.

Contributions Guide

October 23 2013

Does my Solo 401k need to be registered into public record?

Dmitriy Fomichenko Bank Account, Setup

The bank says I have to register my Solo 401k trust into public record. What do I do?

When opening a trust checking account, some clients have been told by their banks, “Your trust needs to be registered with [the state/government organization].” While this may be a bank's policy (and an uncommon one), it is not the law.

Difference between state-filed entities and trusts

Entities such as corporations and LLCs are created through filing with the state, e.g. filing Articles of Incorporation with the Secretary of State office. The filed document is then used to open a bank account for the corporation or LLC. Many banks are familiar with these types of entities.

A trust, on the other hand, is a private instrument that is brought into existence by the involved parties signing the trust agreement. The trust agreement does not need to be filed with the state/ government office or as public record for any reason. Trusts are not state-granted privileges; instead they are instruments granted by common law.

Established on a federal, not state, level

Your Solo 401k is established on the federal level, not the state level. As a retirement plan trust, the Solo 401k is covered by the IRS Opinion Letter that was included in your set of plan documents. The plan is also registered within our document system.

The plan is not registered with the state nor as public record. If requested, you can submit a copy of the plan documents to your bank, such as the Adoption Agreement and the IRS Opinion Letter.