Solo 401k Brokerage Account with Interactive Brokers

October 16, 2014 | By Mark Nolan

Last Updated 8/3/2022

QUESTION: I do have a brokerage acct with Interactive Brokers for my personal account. Can I use them to open a brokerage account for my solo 401k?

Thank you,

Terry in Maryland

ANSWER: Yes, you can open a brokerage account for your solo 401k through Interactive Brokers. The following link will take you to the Interactive Brokers on-line trust application.

https://www.interactivebrokers.com/en/index.php?f=1591

You will want to click on “Protrack Application” to fill-out the on-line “Trust Application”.

However, you will not be able to invest the self-directed solo 401k through the Interactive Brokers brokerage account in alternative investments such as real estate, notes, trust deeds, tax liens or private companies, for example. Instead, you will need to open a separate bank account for the solo 401k if you want to process alternative investments by writing a check or by wire, or if you want to process a solo 401k loan. If you want to be able to do everything under one umbrella—that is, invest in equities, alternative investments such as real estate as well as process solo 401k loans, the Fidelity solo 401k brokerage account may be a better option.

Add Margin Trading QUESTION:

Can I add margin trading to my Interactive Brokers solo 401k?

ANSWER:

While the solo 401k plan already allows for investing via margin, a factor to consider is whether investing in margin will subject your investment to Unrelated Business Income Tax. CLICK HERE & HERE for more information on Margin and UBIT.

Practically, speaking this change would be done via the brokerage. I understand that you already have a brokerage account(s) at Interactive Brokers.

Type of Trust QUESTION:

I need your help on a quick question regarding the legal definition of the type of Trust Agreement used when setting up Individual 401ks with you.

While completing the account opening process for the solo 401k brokerage account at Interactive Brokers, they asked if this Trust is considered a “statutory trust / legal entity” or a “common law trust”? We assume it is a “common law trust” but given the very bad tax consequences if not properly transferred to a tax-qualified account, I want to be sure. I just don’t know the legal distinction of the question being asked.