Setting up a Solo 401k or an Individual 401k is understandably a priority for many self employed entrepreneurs. However, it is always best to understand all the Solo 401 k rules, especially ones that your plan administrator might forget to address. Once the basic concepts are explained, below are some common questions that most people forget to raise in the initial process.
Question You May Want to Ask about Solo 401 k rules
1 – Will the account be set up as an LLC or a trust account?
Solo 401k will be set up as a trust. For self directed account, plan participants will be able to act as the trustee and manage the account on their own.
2- There will be a checking account in the LLC or Trust, correct?
Yes, Solo 401k Trust will have a checking account. This checkbook feature is very popular as it gives account holders the ability to make transactions as easily as writing a check.
3- What about property taxes and expenses involved in maintaining the property? Can I pay for all that from my Solo 401k account?
Yes. Solo 401 k rules require that all expenses have to be paid out of the account, and all gains and interests will be paid back to the account.
4- Will I be able to manage the property or do I have to hire a management company?
The answer for this question is quite complicated. See this post for detailed explanation.
5- I understand I will not be able to perform any repairs on the houses, what if they need a major repair and there is not sufficient money left in the account, where will the money come from?
You need to plan for that and have sufficient reserves for unexpected. If this happens and you are not allowed to use any personal funds you will have few options:
- Transfer more funds from another retirement account
- Get a loan against the property in your 401k (not personal loan)
- Bring in a partner who is not a disqualified person
There might be other options that will work as long as there is no violation of the prohibited transactions or other Solo 401 k rules.
6- The rent checks will be made out to whom or what?
The rent checks should be made out to your trust, i.e. XYZ Solo 401k Trust. All income should be deposited directly into your Solo 401k account.
Related Search Terms
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