IRA /401k /SOLO401k/self directed?

[Angela Toy]

My husband is leaving his old job so we're looking to rollover his retirement. Our CPA mentioned moving it to a Solo401k and using that money to buy properties (he has an LLC aside from his W-2 job). When I mentioned to Charles Schwab, they said they don't allow solo401k to purchase individual properties, only real estate investment funds. But I'm also seeing "self directed 401k" on the forums. What's the difference? How to best execute this? Thanks!

[David M.]

@Angela Toy

So...  A 401k is typically offered by a company, i.e. your employer.  typically, they have funds from which you choose to invest.

A self-employed 401k is basiclaly when you are ... self-employed... and you go to Schwab in your case to be the custodian of the account.  Like a typical brokerage account, you can choose what public securities you'd like to invest..

A self-directed 401k isn't something I've heard of... Normally, its with a IRA, or Roth IRA. But the idea is the same since your husband's 401k can be rolled over into a IRA as well... You need to find a custodian different from Schwab that will let you have "checkbook" control of your funds. Basically, you serve as your own custodian. Once you are able to do that, you can direct/spend/invest the funds "anywhere."

This is what they mean by "self-directed" IRA / 401k / Roth IRA, etc... You need that extra level of "freedom/control."

However, I will say that my accountant has told me that he basically doesn't touch this stuff since it gets messed up too easily.  Even if somebody came to him for help, he'd turn it down because the significant time involved (even will billing for it) and the costs to the client are prohibitive.

There are lots of rules, I don't bother to know them all since this is avenue is too extreme for me, around IRA's and 401k's (and the various other tax advantaged accounts). If you buy the wrong thing or move the money the wrong way, it creates a taxable situation and in the worse case, it "breaks" your account. In which case, you might as well have just withdrawn all the money and pay all the tax penalties.

Hope this helps.  Happy to chat if you like.  I know you are consulting a professional already --- maybe mine is wacked out, but perhaps find some other ones.  Good luck.