A solo 401k can invest in stocks, bonds, mutual funds. This is no surprise. These are the assets that most of the retirement account industry has been focused on for several decades but most people are unaware that the retirement account such as a solo 401k can invest in real property whether it’d be residential, commercial, raw land, real estate auctions can invest in debt instruments. Tie the real estate being mortgage notes or not tie the real estate promissory notes, stock in a privately held companies and allowable investment for solo 401k into a C Corporation LLC, it doesn’t make a difference. Precious metals can be purchased by a solo 401k such as gold, silver and platinum. Foreign assets can be purchased in a solo 401k for investment purposes. Tax liens basically, what it comes down to is what can a solo 401k not invest in?
A solo 401k cannot invest in precious metal bullion although minted coins are allowed and most of what a solo 401k cannot invest in is not specific class of assets like a type of asset but specific to the circumstances of the transaction and that’s where this concept would prohibit transactions comes in and it’s not asset specific. It’s specific to the circumstances of the transaction. And basically, it occurs when a plan such as the solo 401k plan transacts the disqualified person. You yourself of your own solo 401k would be a disqualified person as well as your family and any into this were companies that you or your family members have significant ownership in. Now, when I say you are a disqualified person, it means that you can direct your 401k plan and you can be involve in that sense and of course the 401k plan is designed to benefit you in your retirement years but prohibited transaction would occur if you directed your solo 401k to make an investment that benefits you now.
So, a privilege transaction occurs, we can breeze through some of the basic promise of it is between a plan in disqualified person if lease or sale of property occurs or loaning of money or extension of credit, providing of services or any other years of plan income or assets that are in the interest of the disqualified person rather that the sole interest for the solo benefit of the 401k plan only.
Now, a lot of people are maybe familiar with this self-directed IRA or even the IRA LLC that’s because self directed IRAs have been used since the 70’s. The solo 401k was introduced to the self-directed arena until around 2006-2007. A solo 401k is very different in the self-directed IRA and that it can do about everything that is self-directed IRA or IRA LLC can do and then it has some additional unique benefits above and beyond the capability use of an IRA.
One of those is higher contribution limits, also a solo 401k has an exemption for special taxes, and the one is UDFI that would apply to IRA’s in some cases. Solo 401k offers a participant loan and the raw sub account of the solo 401k can be used to make after tax contributions and eliminate taxation on later distributions. And there is no income restriction on them for a solo 401k the way there are for an IRA. Also, with solo 401k there is no custodian required. So, you can name yourself as the trustee of your own solo 401k plan rather than hiring a bank or a trust company.
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