This is a topic that encompasses many moving parts…and, we are going to address one very small (but important) moving part in this process. Further, we are going to keep the “concept” brief and to the point without belaboring the discussion.
The administration of your Solo 401(k) is important and a responsibility that should be taken seriously. Many companies emphasize (and understandably so) that the Solo 401(k) is an easy plan to qualify for, participate in and administer. And, while this is true on many fronts, many times people become enamored with the freedom and flexibility of controlling their own retirement assets and investment activities, that they lose sight of the fact that their plan is self-administered and many IRS and DOL regulations must be strictly adhered to. Keep in mind that, in most cases, you will be the Trustee of your Solo 401(k) and have legal responsibility for fiduciary operation of the plan and maintenance with retirement plan regulations.
One of these areas of self-administration is correctly segregating the funds within the plan. Segre…what?!
For many individuals, their 401(k) plan will have and should have segregated funds within the plan. Now, don’t worry, you will have all of the access to all of the funds within the plan, but these funds should be segregated within the plan as they may be administered, invested and distributed in different manners.
Let’s use a few examples:
Okay, I KNOW what you are saying under your breath….and that is something akin to the fact that you don’t believe this is necessary and this sounds like too much work. But, not only is it not difficult, these recommendations are to protect you (as Trustee) and the plan. If you can easily and without question account for all of the funds in the plan,…you will thank yourself later.
When considering what company you may work with in establishing your Solo 401(k) plan, keep this concept in mind. Many companies will tell you all you have to do is “open the 401(k) account at your local bank…is is as easy as that.” And, in some respects, it is. But, do yourself a favor and seriously consider a painless plan set-up that will provide you two great benefits:
1) The ability, from one account, to make both traditional and non-traditional assets investments…yes, that is what I said! Invest in stocks, bonds an mutual funds (of course, only if you want) and assets like real estate and precious metals…all from one account.
2) Have one plan account that separates out for you the various types of contributory accounts that you may have within the plan. Still have access to all of the funds, but segregate them.
Your self-directed Solo 401(k) plan is a wonderful retirement vehicle for you to have the flexibility to invest as you see fit. With proper planning, you can account, operate and administer your plan in a manner that ensures your compliance with IRS regulations. In this case, always think of sub-accounts!
As always, the information provided is intended to be educational in nature. It is not intended, nor should it be interpreted as, any form of tax, legal, financial or investment advice. You must always consult with your respective professional in all such matters.