Assets

I'm considering investing my Solo 401k into an investment that only allows accredited investors. How does the Solo 401k qualify to be accredited?

Answer:

In order for a Solo 401k to qualify as an accredited investor, the 401k owner must qualify:

1. Annual income of over $200,000 single, or $300,000 married, in each of the past 2 years.

2. Net worth in excess of $1,000,000, not including equity in investor’s personal residence.

When dealing with all plan assets, whether a bank account or a title to real property, always use the Solo 401k Trust.

• All assets purchased by the retirement account should be titled in the name of the Solo 401k Trust
• Always use the Solo 401k Trust EIN for any 401k transaction
• Check the Solo 401k Trust EIN for the correct wording ("ABC 401k Plan" or "ABC 401k Trust")

The Solo 401k Trust EIN document was provided to you in your set of plan documents.

Do NOT use the EIN for your business nor your personal Social Security Number when providing a tax ID for a 401k transaction.

Example

If your 401k trust is named DBM Solo 401k Trust and investing in a note:

• The agreement should list DBM Solo 401k Trust as the buyer
• The title company should list DBM Solo 401k Trust as lienholder
• Your bank accounts and/or brokerage accounts should be in the name of DBM Solo 401k Trust

For specifics of how to take the title to real estate please read Titling Real Estate in the Solo 401k Trust

Contrary to the vast majority of 401(k)s and even some Solo 401(k)s, your Solo 401(k) from Sense Financial can invest into anything allowed by law. Our plan documents don’t place any additional restrictions on your activities. This leaves you free to invest in real estate, private businesses, mortgage notes, and more. The acquisition of traditional assets such as stocks, bonds, and mutual funds is also permissible.

The main restriction is on “self dealing” which means you cannot direct your Solo 401(k) to transact with (or benefit) you or most of your family members. Such a transaction is called a prohibited transaction.

I'd like to check with you if participating as a lender in peer-to-peer lending platform such as Lending Club will be okay in my Solo 401k. They do support opening a Self-directed IRA account, but I would like to be able to invest directly out of my 401k without opening new self-directed IRA account.

Answer:

Yes, you can invest using Lending Club platform with your Solo 401k Trust.

You will need to establish a trust account in the name of your 401k trust:

https://www.lendingclub.com/public/investment-account.action

• Name of the trust:  Name of your 401k trust
• Tax ID of the trust:  EIN of your 401k trust
• Grantor:  Plan sponsor/Adopting business of the 401k

https://kb.lendingclub.com/investor/articles/Investor/What-are-Lending-Club-s-investment-account-options/?l=en_US&fs=RelatedArticle

Yes. You can use your 401k as a bank and lend money to other non-disqualified persons. Your Solo 401k would receive principal and interest just like a bank. The account holder (or trustee) chooses the borrower, principal amount, interest rate, length of the term, payment frequency and amount, and whether the note is secured by collateral or not. For recordkeeping please use appropriate form from the list of Miscellaneous Forms.

Benefits of 401k loans

• You have strategic control over the person/entity to whom you lend money as long as the person/entity is non-disqualified
• Lending is an asset that you have experience with and understand
• The return on your money is pre-established
• You choose lending terms and collateral with which you are comfortable
• Loans can potentially yield a cash stream

Important things to know

• The 401k loan must be a real economic transaction
• A 401k Trust is its own financial and legal entity, and it is separate from your personal finances
• As a separate legal entity, your 401k Trust has it's own name
• The 401k Trust is the lender, not the plan participant. Therefore, all income goes back to the 401k Trust
• All 401k loan documents must be in the name of the 401k Trust, not your personal name
• For the documents associated with your 401k loan to be complete and legal, they need to be signed by plan trustee
• Plan trustee can hire professional help to generate loan documents (promissory note, deed or trust or mortgage, etc.) and/or loan servicing, all expenses for this process will be paid by the 401k

Can I purchase precious metals such as silver and gold inside of my Solo 401k plan?

Answer:

Precious metals such as Gold, Silver, Platinum and Palladium can be purchased inside of a retirement account.  If you choose to do so within your Solo 401k, you can enjoy tax-deferred profits going back into your retirement account.  Keep in mind, however, that the coins cannot be “collectibles"; these are not permitted within the Solo 401k according to Internal Revenue Code Section 408.

A qualified plan (such as the Solo 401k) is exempt from the UBTI related to buying property with financing.

For an IRA LLC however, the taxation rate is determined by the amount of leverage you’re using. For example, if eighty percent is leveraged and twenty percent of cash is put into the property, then eighty percent of the income/eighty percent of the gains will be taxable.

For calculating UBTI tax and preparing the relevant forms, always consult your CPA or tax advisor.

Both my wife and I have separate accounts under our Solo 401k. Can I use funds from my account together with my wife’s account to make the investment?

Answer:

You can pool funds together from different accounts under the same 401k into single investment. The key here is that all of the expenses of the investment and profits from the investment must be distributed according the ownership percentage for each individual account. The same would apply if you were using your pre-tax funds of your 401k together with Roth 401k funds.

What about  the mechanics, e.g. do I write two separate checks from respective accounts towards the investment?