Structuring your Individual 401K and SDIRA to invest in Notes

[Kevin Brinkmann]

I have some questions in regards to investing in Notes with a Solo / Individual 401K or SDIRA. There are a couple discussions that promote investing in Notes through an LLC for some added liability protection. For those who have an Individual 401K plan and have invested in Notes, did you create an LLC within your retirement plan through which to invest in Notes or did you structure your investments differently and if so how? For those who have used your SDIRA for Note investing, did you create your plan as an SDIRA LLC plan for this purpose or did you use a different approach? Appreciate any advice and feedback that the community can offer.

[Tim S.]

To have checkbook control SDIRA, you'll need an LLC. I have mine structured this way and would recommend it. You don't have to go to the custodian every time you need to cut a check or wire money. Your LLC "owns" the checking account, you as the manager have direct control of the funds in that account. You have to be aware of, and follow the rules to avoid prohibited transactions (which isn't that complicated). You won't have the custodian looking over each transaction to protect you from making a mistake. Of course you can always call them before any transaction to make sure.

It's more expensive to set it up this way initially, but then you have control (=speed), and don't have to pay fees on each transaction. Over time, the fees you would otherwise have to pay, will offset the up front cost of setting up the LLC. You can fund deals much more quickly since you don't have to rely on the SDIRA custodian to do it for you, at their pace, which can be slow (I've heard)

Solo 401k's have many advantages over SDIRA, so if you have the option, you should do it that way.