Investments

 

In the investment world, an alternative investment is any investment outside of stocks and bonds. Anything from real estate to precious metals, commodities, notes and even bitcoin are types of alternative investments that are increasingly attracting the attention of many solo 401k and IRA investors.

A Solo 401k immediately broadens investing possibilities by permitting investing in any asset that is not disallowed under the IRS regulations. Here are some of the many investment possibilities available with a Self-Directed Solo 401k.​

Real Estate

  • Residential Property
  • Commercial Property
  • Developed Land
  • Foreclosures
  • Rehabs/Flips
  • Mobile Homes
  • REITs

Promissory Notes

  • Mortgages/Deeds of Trust
  • Secured notes
  • Unsecured notes
  • Car Paper
  • Commercial Paper

Tax Liens/Tax Deeds

  • Tax Lien
  • Tax Deed

Others

Click here to learn about the steps and procedures for buying real estate with your self-directed 401k.

Click here to learn about the steps and procedures for buying promissory notes with your self-directed 401k.

Click here to learn about the steps and procedures for investing in a private company with your self-directed 401k.

With Whom Can You Make Solo 401k Investments?


Who’s Out

  • You
  • Your Spouse
  • Your natural parents and/or your adoptive parents
  • Your natural grandparents
  • Your natural children and/or your adopted children
  • The spouses of your natural children
  • Any fiduciary of your Solo 401k
  • Any people providing services to your Solo 401k–such as your stockbroker–as well as his employees and both his and his  employees’ blood relatives
  • Your Solo 401k trust document provider or administrator

Who’s In

  • Your brothers and sisters
  • Your Spouse’s brothers and sisters
  • Your spouse’s parents
  • Your spouse’s grandparents
  • Your stepchildren
  • Your spouse’s stepchildren
  • Your grandparent’s spouse, if not your natural grandparent
  • Your aunts, uncles, and cousins

Solo 401k Investments

Click here to learn more about prohibited transactions and sample illustrations.

Bitcoin Investment QUESTION:

I have moved funds into the solo 401k bank account. I am considering investing some funds into Bitcoin. Wanted to get you thoughts on it and ask if my plan allows for it?

ANSWER:

Yes our solo 401k plan allows for investing in alternative investments such as bitcoin.

We have clients that have established individual accounts at Coinbase and then linked the account to their Solo 401k bank account. Please keep in mind that (i) no non-retirement funds should be deposited into the account; and (ii) if both business partners or spouses are participating in the solo 401k plan, both business partners or spouses need to keep their funds in separate accounts.

Promissory Note QUESTION:

I have a few questions about using my Solo 401k account.
 
I took a personal loan for 50% of the balance, which is getting paid back monthly.
 
Now I am looking into using some of the money to invest in a real estate project, either as a JV partner, or as a hard-money lender.  What restrictions, if any, do I have on using that money?  Is there a limit on how much I can use?

ANSWER:

There are no limit restrictions for how much of your solo 401k funds you can invest. You could potentially invest 100% of it if you desire. Restrictions (who you can lend the solo 401k funds) will be covered under the prohibited transaction rules. Please see important information on our links below. 
 

Investment Fund QUESTION:

I am looking at moving funds from my solo 401k 401k checking account into an investment fund and wondering if there is anything I have to do to document it to make sure I am in compliance.

ANSWER:

Yes, the solo 401k investment rules allow for investing in private companies. This appears to be an equity investment in a private company that has been registered with the SEC. We have created a sample procedure that lists the typical investment documents associated with this type of investment- Click here to view.

Bust Investment QUESTION:

If the solo 401k investment goes bust, how do I record the write off?

ANSWER:

There is no “write off” as this investment is done via a Solo 401k where the gains are tax-deferred.

Domain Names QUESTION:

Can the Solo 401k invest in domain names and resell them with proceeds back into the account?

ANSWER:

We are not aware of any specific prohibition on purchasing a domain name via a Solo 401k.  As such, this is acceptable provided that (i) the domain name is purchased from an unrelated person; (ii) the title is issued in the name of the Solo 401k (e.g. your name as trustee of Solo 401k) – which you should confirm that this is possible; and (iii) the domain name is not operating as an active business.

REITs Investment QUESTION:

I have found a few REITs that allow for non-accredited investors to invest into the fund. They say they must issue a 1099-DIV. This is still ok?

ANSWER:

Yes provided that it is issued to the Solo 401k and under the EIN for the Solo 401k so it does not trigger any taxes.

Making Investment QUESTION:

When I want to make an investment, do I need to run this by you, and are there documents required for said solo 401k investments from your end?

ANSWER:

No.  You don’t have to submit the investments for our approval.  At the same time, we are here if you have questions. You may also use the investment forms located HERE to help document the investments but the forms are for your records only.

Making Investment QUESTION:

Say I want to purchase an investment home to flip, and I have enough funds for down payment. Is the 401k account permitted to receive a loan to complete the acquisition? Usually an individual has to guarantee the loan, which would be me personally. How does this work under this scenario? Or must the account have sufficient funds for a cash deal only?

ANSWER:

The Solo 401k can finance the purchase of the real estate provided that the financing is non-recourse (i.e. neither you nor the 401k can guarantee the loan).

  • Non-recourse financing: Find lenders that specialize in non-recourse loans to solo 401k plans: CLICK HERE

ANSWER:

No.  You don’t have to submit the investments for our approval.  At the same time, we are here if you have questions. You may also use the investment forms located HERE to help document the investments but the forms are for your records only.

Bitcoin for Investment Purchases QUESTION:

Can I use the Bitcoin held in my solo 401k or self-directed IRA to purchase investments (e.g., real estate or metals) to be held in my solo 401k or self-directed IRA?

ANSWER:

Bitcoin in a solo 401k plan or IRA can’t be used to make investment purchases.

BlockFi Cryptocurrency Account QUESTION:

Can we set up an institutional crypto account for the solo 401k with BlockFi?

ANSWER:

If you are using the platform to purchase cryptocurrency, the BlockFi account would have to be opened in the name of the solo 401k plan and under the plan’s EIN.

BlockFi has features that would not be allowable for a solo 401k plan such as lending bitcoin. The issue of lending bitcoin or other cryptocurrency is murky because the IRS may treat the transaction as a sale even though the parties may want to refer to the transaction as a loan.  The IRS considers cryptocurrency to be property rather than currency.  When you lend property to someone, the same property is returned by the borrower to the owner.  When you lend currency to someone, the borrower does not return the exact same currency (i.e. the same dollar bills). Please click here to learn more earning interest from your solo 4o1k owned Crypto account. 

Cryptocurrency Wallet QUESTION:

I was wondering about Cryptocurrencies. Could I transfer a cryptocurrency from an exchange onto a hot wallet like Metamask and stake it for yield or onto DeFi?

ANSWER:

1) If you have invested your Solo 401k funds in cryptocurrency (i.e. via an account at a cryptocurrency exchange under the name and EIN of the Solo 401k) and the exchange allows the cryptocurrency to be transferred off the exchange to a physical wallet, it would be acceptable to do so provided that the wallet is a dedicated wallet for Solo 401k investment (i.e. no commingling with cryptocurrency that you own personally) and the wallet is stored in safety deposit box associated with a bank account under the name and EIN of the Solo 401k.

No Depreciation or Loss Applies to Solo 401k Investments QUESTION:

I have invested in shares of real estate development entities through my solo 401k trust account.  I’m assuming since any profits and returns are tax deferred that I am not able to take advantage of any losses or depreciation on an annual basis from these investments.

ANSWER:

You are correct because they are held inside a qualified plan. Just like an IRA, a solo 401k is a tax sheltered vehicle; therefore, the gains from alternative investments such as real estate and private placements are owned by the retirement account (in this case, the solo 401k plan) not you personally, so the gain/profits flow back to the retirement account and grow tax deferred or tax free in the case of a Roth solo 401k. In sum, losses and depreciation deductions do not apply to investments by the retirement plan.

Invest in Mutual Funds and Real Estate QUESTION:

I’m self employed and make anywhere from 90,000 – 150,000 per year based on the year.  I’m planning on opening a Solo 401k retirement plan and do like the flexibility to invest in rental property, however for right now I’d stick with mutual funds.  How would I go about investing and self managing mutual fund options through MySolo401.

ANSWER:

We can set up a free brokerage account for your Solo 401k (e.g. at Fidelity, Schwab, etc) where you can both invest in mutual funds and other traditional investments as well as real estate and other alternative investments. This is possible because we are the solo 401k plan providers and provide the ongoing full compliance support.

Cars are Deemed Disallowed Investments QUESTION:

I own a piece of vacant land in my Solo 401K.  The market value of the property is about $110,000. I have someone who wants to trade me for a 1989 Show Truck appraised at $140,000 and a 1968 Show Car worth an estimated $60,000. They are probably only worth about 60% of that.
 
Is there any reason this would be a prohibited transaction?

ANSWER:

Good question; however, such a transaction is not allowed as cars are considered disallowed investments for both IRA and solo 401k plans.

Private Investment QUESTION:

I am looking to diversify away from just investing my solo 401k plan in stocks and mutual funds. Can a solo 401k plan be invested in a private company?
 
Is there any reason this would be a prohibited transaction?

ANSWER:

(1) Yes the IRS solo 401k rules allow for investing in a private company (private equity) provided that (i) the solo 401k owner / participant (nor any closed related persons) are not working for the entity in which she intends to invest retirement funds; (ii)  the solo 401k owner / participant (nor any closed related persons) do not hold any ownership position personally in the entity in which she intends to invest solo 401k retirement funds; and (iii) the solo 401k owner / participant  (nor any closed related persons) otherwise do not have a relationship with this entity either in her own name or through an entity that you control (e.g. the solo 401k owner / participant  is not a landlord, lender, vendor, etc.).
 
(2) The investment must be titled in the name of the Solo 401k with funds flowing from the Solo 401k account(s) and any return on the investment flowing back to the Solo 401k account(s).  If the solo 401k owner / participant will invest in the investment, the investment would simply be titled in the name of the Solo 401k with funds flowing from her solo 401k account at the time that the investment is made.
 
(3) If the investment is structured as equity (e.g. stock in a corporation, membership interest in an LLC, etc.) the investment may be subject to unrelated business income tax if (I) the entity is an active business (e.g. providing goods or services) and (ii) the entity is NOT taxed as a C Corporation.  If investment is structured as debt there is no unrelated business income tax issue as long as it is TRUE debt (e.g. some debt can be converted to equity such as a convertible note).  Please see the following links for more information:
 

Invest in Life Insurance QUESTION:

A question about the type of investments. I see on page 32 H, the plan permits investments in Life Insurance. Please clarify as I was given to understand that 401k plans cannot invest in insurance.

ANSWER:

IRAs cannot be invested in life insurance but 401k plans can. This is one of the differences between a 401k and an IRA.
 
 
 

Promissory Note Investment Default QUESTION:

My solo 401k plan made a promissory note investment secured by property ( 2nd position construction loan) in Oregon. The individual I loaned the money too has mismanaged the rehab and has indicated he may have difficulties paying back the loan by the due date. If he should default, is there anything I need to do other than foreclose, which I will be unable to do on the due date due to foreclosure restrictions imposed by the State of Oregon.

ANSWER:

We understand that your Solo 401 K has made a loan to an unrelated person whose loan has gone into default. You as the trustee of the Solo 401k may certainly enforce the creditor rights of the Solo 401 K including making reasonable attempts to collect the debt, enforcing the security interest including filing a creditor claim with the bankruptcy court (if applicable), foreclosing on the real estate that secured the loan, etc.  As the rules that apply to debt collection and enforcing security interests in real estate vary by geographic location, it would be prudent to discuss these steps with your local advisor and we are happy to participate in that conversation.
 

Invest in a Living Trust QUESTION:

Anything I should be aware of when investing a solo 401k in a living trust?

ANSWER:

While a solo 401k may be invested in a land trust for investing in real estate, for example, a solo 401k cannot be invested in a living trust. However, you can name a living trust as the beneficiary of a solo 401k where the solo 401k proceeds will be paid out to the living trust upon your death.

 

More Solo 401k Investments Resources

 
Real Estate
 
Notes
 
Tax Liens
 
Precious Metals
Private Investment

Cryptocurrency / Bitcoin

Crowd Funding  

SOLO 401(K)

INVESTMENT PROCEDURES

COMPLIANCE, Contrib. & Dist.

HOW TO & CHECKBOOK

SOLO 401K & ROLLOVERS

SOLO 401K LOAN & WHY US

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