Self Directed Solo 401k: Checkbook Control without a Custodian or LLC

Self Directed Solo 401k retirement plans provide checkbook control without the use of an LLC or custodian.

Understanding the concept of custodian

The concept of a custodian comes from the Internal Revenue Code (IRC) Section 408, which is devoted to Individual Retirement Accounts (or “IRAs”). Section 408(a)(2) of the IRC explains that an IRA is normally a trust with a trustee.

The trustee can be either:

• A bank, as defined in Section 408(n) as a bank, trust company, or any company specifically approved by the IRS, or

• “Such other person who demonstrates to the satisfaction of the Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of this section”

In this capacity, the trustee acts as “custodian” toward the IRA, and the trustee’s role is to invest the plan as directed by the account holder.

Introducing the Self Directed Solo 401k with checkbook control

A Solo 401k plan is a type of 401k that is designed for self-employed individuals or small business owners whose businesses have no full-time employees. All 401k plans are qualified plans, and qualified plans do not have any special restrictions on who can serve as trustee.

The Solo 401k by Sense Financial is structured so that the participant is the trustee. This allows the participant/trustee to direct and handle the investment transactions themselves and simplifies the operation of the plan by eliminating the third-party custodian along with their custodial fees.

Responsibilities of the trustee

Checkbook control does require certain responsibilities from the trustee, such as reporting on behalf of the plan and maintaining legal compliance.

• Annual reporting consists of Form 5500-EZ, which is only required once the value of the plan reaches $250,000 and above. Sense Financial provides step-by-step instructions for this annual filing.

• Legal compliance includes avoiding prohibited transactions with the plan, as defined by the IRS. You, as trustee of the plan, must avoid prohibited transactions with your plan. 

Titling the assets

As trustee of your Self Directed Solo 401k, you must title all investments in the name of your Solo 401k Plan and using the EIN of your Solo 401k.

Remember that your Solo 401k is a separate investor from you; its name must be listed on all purchasing and contracting documents:

XYZ Solo 401k Trust FBO John Smith, Trustee

All necessary deposit or earnest funds must come from your Solo 401k. At closing, you will approve and sign all documents as trustee of your Solo 401k. 

Simple and efficient to operate

The Self Directed Solo 401k plan by Sense Financial is much easier and less expensive to operate compared to a Self-directed IRA. Because the individual serves all roles- employer, employee, plan participant, plan administrator, and plan trustee, the Solo 401k plan provides the most effective, flexible, and direct way to grow one’s retirement. The role of both employer and employee allow a high contribution limit, and the spouse, if working in the same self-employment business, can also participate and and contribute to the plan.