Fidelity won't open the business account for my LLC

[Zehua Zhou]

My LLC is 100% owned by my 401k. So it is a disregarded entity where the tax should flow to my 401k.

When I try to open a business account with Fidelity, I filled their form to explain that the owner is my 401k and the manager is me. They declined my application after a week of review, citing that "Non-retirement accounts cannot hold retirement funds".

Can you please let me know your suggestion here? My 401k is set up with uDirectIRA. If I don't setup the LLC and don't setup the bank account, then it will be a lot slower because every time when I sign for the offer or for some expense, I have to ask them to sign. Also uDirectIRA's trust account only pays 0.1% interest, but Fidelity pays nearly 5% interest.

[Dmitriy Fomichenko]

@Zehua Zhou,

You have a flawed setup. A 401k does not require a custodian or a third-party administrator (TPA), and you don't need an LLC to have checkbook control for your 401k. You just need the right provider to set it up better. We set Solo 401k plans for our clients in the form of a trust instead of using a custodian. The trust will have its own EIN, and as a trustee, you control it. This way, you will eliminate the custodian completely with its fees, red tape, etc. The end result - are you truly in the driver's seat of your 401k!

As trustee of the plan, you can open a bank account in just a few hours at one of our preferred banks. If you need a brokerage account at Fidelity, you open Fidelity's Investment-Only Non-Prototype Retirement account for the 401k; there is no need for the LLC. Your structure is complex and not cost-effective. Try to always remember and apply the KISS principle (keep it simple).

[Zachary Jensen]

Have you tried opening up one just for yourself? It sounds like you maybe don't need all this complex structure 

[Dmitriy Fomichenko]

@Zachary Jensen, you may have misunderstood Zehua's question. He is not trying to open a personal account; he is trying to open an account for the 401k, which is a qualified retirement plan and needs a separate account. One must not commingle personal and retirement funds. 

[Jason Malabute]

I had a potential investor face a similar situation, and I've found that there are often more restrictions when investing from a 401k compared to an IRA. Based on what I remember, it gets even more complicated if the 401k is from a previous employer.

In your case, since Fidelity is declining the account due to the nature of the retirement funds, one option might be to consider rolling over a portion of your 401k into a self-directed IRA, which typically offers more flexibility. This could potentially help you avoid the restrictions you're encountering with Fidelity. However, it's essential to consider the trade-offs, especially with the difference in interest rates between uDirectIRA and Fidelity.

I’d recommend talking to a custodian who specializes in this because they would be more knowledgeable about the nuances. Let me know if you’d like a reference!

[Zehua Zhou]

Quote from @Jason Malabute:

I had a potential investor face a similar situation, and I've found that there are often more restrictions when investing from a 401k compared to an IRA. Based on what I remember, it gets even more complicated if the 401k is from a previous employer.

In your case, since Fidelity is declining the account due to the nature of the retirement funds, one option might be to consider rolling over a portion of your 401k into a self-directed IRA, which typically offers more flexibility. This could potentially help you avoid the restrictions you're encountering with Fidelity. However, it's essential to consider the trade-offs, especially with the difference in interest rates between uDirectIRA and Fidelity.

I’d recommend talking to a custodian who specializes in this because they would be more knowledgeable about the nuances. Let me know if you’d like a reference!

 I have migrated my account from uDirectIRA to SenseFinancial and I am very happy about it so far. 

solo 401k do not require custodians. uDirectIRA was the custodian and everything was very slow and frustrating. They needed 3-5 business days to review and approve my wire transfer request that was just two pages long.

Now SenseFinancial helped me restate the 401k plan and have no custodians. I am the 401k admin and trustee so I have full control.

I can buy a property directly under my 401k trust and sign on behalf of my trust. Or if I still want to have the 401k Invest in an LLC, I believe I can open an LLC business account, have a form that says it is a private equity investment from the 401k, and then operate the LLC to hold a rental property.

Fidelity has reps that don't understand things. It is much easier to use their online business account application and just put my name there as the indirect account owner, and put in the 401K's EIN instead of the LLC's EIN. (I haven't tried this so don't hold me onto it. I did try submitting an LLC business account application for another LLC that's directly owned by us and it was approved quickly. The rep confirmed that the W9 form has whatever EIN we put into the application.)

I think it is a bad idea to move 401k funds to IRA because IRA has less protection, and subject to UDFI tax if you buy a rental property with debt.