All Forum Posts by: John Bowens

Tina, 

I'm sorry to hear you have had that frustrating experience. This is not the first I have heard this in the industry surrounding Solo 401(k)'s. I believe I can help provide some education/instruction for you. 

If I understand correctly you have a Solo 401(k) and are being told you need to find a new Third Party Administrator/Recordkeeper. With a Solo 401(k), you are not required to maintain a "custodian" unless you are interested in exploring that avenue. There are pros and cons with this, which I will detail below. 

The short answer to your question is: 
1) You will engage with a new Administrator/Recordkeeper who can perform what is called a "Plan Takeover." I like to describe it as a transplant from one firm to another. All the data, asset holdings, transactions will be ported over to the new recordkeeping system, along with the current plan document being moved and updated as needed. 

2) If you currently hold real estate or other asset, you may need to look at retitling, if you elect to move to a custodian. If you are not rolling over to a custodian, but just changing the plan administrator and recordkeeper, you should be able to retain the titling of the investments, which may simplify the process. 

3) You should be able to retain the current bank account for the Solo 401(k), but may need to switch to a banking partner that is more compatibly with the Solo 401(k) platform you use. 

4) If you have a self-directed brokerage account tied to the Solo 401(k), you may need to make some adjustments there. 

PROS of a Solo 401(k) with no Custodian: 1) Freedom of checkbook control, ability to more easily move funds in and out of a bank account in the name of the Solo 401(k). 2) In some cases, lower fees. 3) Ability to more easily link your Solo 401(k) to bank account systems like rental property management systems, or if investing in real estate syndication platforms. 

PROS of a Solo 401(k) using a custodian: 1) Should you pass away while Solo is still active, or when you eventually need to terminate the plan and rollover to an IRA, much easier to open an IRA with that same custodian and initiate a rollover of the assets (retitling required at that time). 2) You have a custodian that likely offers some level of client support and education. That said, there are systems for Solo that offer this as well, you just have to find them.

I can appreciate your frustration and have worked with hundreds of investors over the last 20 years navigating the more complex waters with respect to Self-Directed Solo 401(k)s. Unfortunately, the frustration you are presenting is not uncommon from my experience. The good news, there are usually solutions and options for you to explore. 

Here to answer questions and help in anyway possible. Thanks! 

You might check with your Self-Directed IRA Trust Company/Custodian, they might have a brokerage connection capability where you can setup a brokerage account tied to your IRA, then you can with that brokerage to invest in various public market investments, in some cases stocks, mutual funds, ETF's, treasuries, and CD's. That said, you will find that many self-directed IRA custodians don't have the fully built pipes and plumbing to accommodate this. If not, you could always maintain 2 separate IRA accounts, one self-directed for private lending, and then another for your traditional investing. It is easy to initiate a trustee-to-trustee transfer between firms. It does take 1-2 weeks to accomplish, so does require some effort and monitoring on your part, but sounds like you are a diligent self-money manager, so should be easy for you to accomplish.

Hope this helps for now, and great to hear you are paying attention to your hard earned retirement funds with such care and discipline! 

I always look at retirement accounts as they should be cherished and considered sacred due to the tax-advantaged compounding interest capabilities. All too often I have observed individuals raid their retirement accounts, paying far too much in taxes. As others said, you can look to self-direct your retirement funds, potentially using a checkbook IRA LLC structure as well.

I have broken down 4 key benefits to a retirement account: 

1) Compounding interest in the absence of taxation (particularly with a Roth IRA)

2) Ability to self-direct into alternative assets, like real estate, private real estate partnerships/syndications, crypto, gold & silver and other alternative investments. 

3) Credit protection (see state specific laws), but generally inherent protections. 

4) Upon death, if setup properly, probate avoidance 

Thank you for this post, very informative! 

I appreciate the mention of Roth accounts! Roth IRA and 401(k) Roth accounts. For real estate investors who are investing in debt financed real estate, or real estate syndication, the ability to invest with a 401(k) Roth, avoiding UBIT/UDFI and compounding tax-free growth, can be really powerful!

Deborah, 

Thank you for your post. One consideration as you are working on locating private lenders, is that IRA, 401(k), and other retirement accounts can be used in many cases to make private money loans. For example, I recently made a loan to a house flipper, partnering with my self-directed 401(k) and Health Savings Account (HSA). I'm working on another private loan now on a self-storage opportunity partnering my Roth IRA and HSA. All interest payments flow back to the Roth IRA and HSA tax-free.

This can be a great way to help an investor grow their retirement accounts, and save on taxes! 

I don't see a 401k/IRA as a competition with real estate as with the correct setup, you can self-direct 401k/IRA funds into real estate. That said, if you are working for a company that does not allow real estate in their 401(k) setup (most dont allow) then I can see where you might look at where is best to put my hard earned dollars.

If you have your own business/self-employed you might qualify for a Solo 401(k) or multi-participant 401k whereby you can self-direct into real estate with those funds. 

Matthew, 

Likely going to be difficult to find a bank that will hold a checkbook IRA LLC account and pay a rate. However, depending on the Trust Company you work with, you might have more options with respect to the diversity of public and private market investments. For example, with Equity Trust Company, you can establish what we refer to as the Universal IRA. This is an IRA, just like any other self-directed IRA; however, it allows you to connect your IRA to the following:

1) You can use a checkbook IRA LLC type structure, for example, if you are purchasing individual rental homes, or an occasional fix-and-flip. If you are doing private lending, or investing in other partnerships or LLCs, you don't need this, your IRA can invest directly. I will say, I often see folks create more complicated checkbook IRA LLC structures when they don't need them. For owning real estate, certainly makes sense, but if using the account for other types of investment, likely not necessary.

2) You can connect your IRA, all within the same IRA to a brokerage account, through our affiliate brokerage capability. This allows you to trade stocks, mutual funds, ETFs, gain access to CD's and treasuries.

3) You can connect your IRA to what we call Wealthbridge which is a private market investing platform, enabling you to digitally invest in private opportunities. Equity Trust does not recommend or endorse any one investment. 4) You can connect your IRA to a fully integrated Crypto trading platform. You have the ability to do all of this directly through a single IRA.

If you are purchasing an investment property, and intend on using for investment purposes only, not personal use, it might be possible for you to rollover the TSP to a Self-Directed IRA and purchase the investment property through this type of structure. Keep in mind the following: 1) If you don't have enough cash for the entire purchase in the TSP rollover to IRA, your financing options would be limited to a non-recourse loan. When a self-directed IRA borrows money, the IRA account owner can't sign a personal guarantee. There are banks that do non-recourse loans to IRA's, a simple google search should render you some results. 2) If you are still working for the government, you likely can't rollover the TSP to an IRA. 3) When borrowing money with the IRA, you do have a special tax, called UBIT, not a deal breaker, but something to be aware of.

All said, you will find many folks within these forums that are strong promoters of self-directed IRAs. This is just a quick preview of the capabilities. 

Hope this helps for now and best of luck to you!