Invest solo 401k in C Corporation | Officer and Director Prohibition

Hi Mark,

This is John H, a client since 2011.

QUESTION 1: I am interested in investing my solo 401k in a Class C Corporation which is based in Delaware.

I would own 15%, receive a board seat, and will provide basic advice when requested.

Does this investment qualify for my Solo 401k?

ANSWER:  The solo 401k will need to own less than 50% of the C Corporation, which obviously you already meet. However, because you will receive a board seat and will provide advice, I think it would be deemed prohibited even though the solo 401k would only own 15%. Reason being, since you would be a board member of a C Corporation that your solo 401k would own shares in, then you would fall under letter H of 4975, which states the following: “an officer, director (or an individual having powers or responsibilities similar to those of officers or directors).

You want to pay special attention to the last part that states having powers or responsibilities similar to those of officers or directors.”

ALSO:

QUESTION 2: If I want to trade for the Solo 401k, do I have to open a separate brokerage account? Does it need to be an IRA account, or can I simply open a trust account in the name of the Solo 401k. Most brokers have little to no experience with self-directed 401ks. Some have a little experience with IRAs.

Or; Could I simple transfer money to a brokerage account in my name and then transfer the principle + profits/losses to the Solo 401k in the form an in interest payment or as profit?

ANSWER:  The brokerage account will need to be opened in the name of the solo 401k using its EIN. We have the necessary forms to open a brokerage account at Fidelity, Schwab, TD Ameritrade, Scottrade and E-TRADE. Please let us know which broker you would like to use and we will e-mail you the required forms and cover letter and then assist you in filling out the forms.

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

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