With a Checkbook Solo 401k account, plan owners have direct access to the account and can write a check to fund investments. But is it possible to obtain a credit card under the name of a Solo 401k plan? Find out in this Solo 401k Quick Tip video.
Posts by Vanessa Pham:
On today’s podcast, Ryan had Dmitriy Fomichenko as a guest. Dmitriy is a specialist in Solo 401Ks, and we talked all about that and why it is such a great retirement vehicle for you. We also go in depth on the differences between Solo 401Ks and SEP IRAs, as well as life insurance and the whole infinite banking concept. It’s really cool and I don’t think ever really talked about retirement on any of my channels, so for those of you wondering how you can have some tax savings or how you can put some money away, it’s a great episode and you definitely want to watch all the way through!
What is Form 5500-EZ? Am I required to file it?
Form 5500-EZ is the filing requirement for Solo 401K plans with $250,000 or more in total plan assets. It is a simple informational return that is filed with the IRS. As the plan administrator, you are responsible for filing Form 5500-EZ once your plan reaches $250,000 in total plan assets.
Plans with assets totaling less than $250,000 are not required to file Form 5500-EZ.
For instructions on filing Form 5500-EZ, please visit:
Can I invest my Solo 401k funds in Bitcoin and other cryptocurrencies?
Yes, your Solo 401k plan can invest in Bitcoins and other cryptocurrencies. The IRS allows investing in Bitcoins and other cryptocurrencies, considering them a form of property only. The profit generated from the sale of Bitcoins will be considered as capital gains only, hence preventing them from triggering unrelated business income tax (UBIT) or similar tax consequences.
If you are planning to invest in Bitcoins, here is a detailed post to help you get started.
If I made a mistake on my 5500-EZ, how can I file an amended form to correct the mistake?
On the amended form 5500-EZ, check the box A(2) for an amended return to correct errors and/or omissions. You can then submit it in the same way as the original was submitted.
I would like to invest my Solo 401k funds in Airbnb rental units. Can I occasionally stay in one of the units? The lease would be is under my name. Is it a violation of the Solo 401k rules?
It is allowed to invest in in rentals using Airbnb model or any rental properties with your Solo 401k funds. However, as the plan owner and a disqualified person, you cannot personally benefit from the investment. This means, if the plan owns the rental units, you and any other disqualified person cannot stay in these units. Doing so will be considered a prohibited transaction.
Since these units are owned by the Solo 401k plan, the titles and leases should be under your plan’s name. You cannot put your name on any paperwork, because doing so you will be providing a personal guarantee. This would also be a prohibited transaction.
Please also note that short term rentals are considered "active business", therefore income from this activity might be subject to Unrelated Business Income Tax. Be sure to consult with a knowledgeable CPA about tax implications for your 401k.
While you could possibly manage long term rental property in your 401k, managing short term rentals such as AirBnB would required significantly more work and likely to be considered "providing services", which is prohibited by the IRS.
I invested my Solo 401k funds in notes. When the interest payments are made, should I deposit the payments into my Roth IRA? Is it correct that I cannot deposit more than the limit of $6,500? After the interest payments add up to $6,500, should I send the interest payments elsewhere?
First of all, all gains and profits from investing funds from the Solo 401k plan must be deposited back into the Solo 401k. If the Solo 401k plan paid for and now owns the notes, you cannot send the interest payment to any other account, even if it is your IRA. Plus, you cannot transfer funds from a regular Solo 401k account to a Roth IRA. The first only accepts pre-tax amount, while the latter takes after-tax amount only.
If your Solo 401k account owns notes and receives interest payments, all interest should be deposited into the plan. The limit you mention is contribution limit, which is different from investment earnings. Every year, you can only deposit a maximum of $6,500 into an IRA, and $54,000 into a Solo 401k account. However, once these contributions are in the plan and earning interest, there is no limit on how much interest can be deposited. In fact, all interest amounts have to be deposited back into the Solo 401k.
All expenses for my rental units, including renovation and furniture cost, are paid for by the Solo 401k plan. I also made transactions from the plan to pay for check orders, personal credit check, and tax planning. Are these legitimate?
The investment expenses should be paid for by the Solo 401k plan. However, it is important to differentiate which expenses are related to the investment, and which are personal. Renovation costs and furniture purchases are investment expenses and can be paid for by the plan, as long as the plan owns these units. You cannot use funds from the Solo 401k plan to pay for expenses of any property which you personally own or stay at.
The cost of ordering checks for your Solo 401k bank account is considered a cost related to operating the plan. Therefore, you can also use your Solo 401k plan to pay for that.
Examples of personal expenses that cannot be paid for by your retirement account are tax-planning expense and credit checks. These costs are not related to the plan operation or investment, and should be paid from your personal account.