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This is a great question as we have many clients who want to invest in both brokerage-type investments (e.g., stocks, bonds, mutual funds, etc.) as well as alternative investments such as real estate.
Of course, our Solo 401k plan supports both and we don’t hold or have access to any of our customers’ funds.
At the same time, we help clients open accounts at the bank or brokerage of their choice. For a Solo 401k owner/participant who wishes to invest their Solo 401k funds in stocks, bonds, mutual funds, etc., such person would need a brokerage account to make such investments and we help our clients open accounts at the brokerage of choice (e.g. Fidelity, Schwab, E*Trade to name a few) including preparing the paperwork to open such accounts.
While many of the brokerages where we help our clients open accounts do provide a free checkbook as well as the ability to wire funds out of the brokerage account (for example, to make an alternative investment), many clients who wish to invest in alternative investments prefer to have a bank account for their Solo 401k as this will provide the Solo 401k owner/participant access to certified bank checks, debit card, and the ability to ACH funds in and out of the Solo 401k bank account – all of which helps to facilitate alternative investments such as real estate.
Please note that it is possible to have both a bank and brokerage account for the Solo 401k and move funds between the accounts (e.g. if the Solo 401k owner wishes to invest in a mutual fund between real estate investments).
Learn More:
Who is the custodian for my Solo 401k?
The custodian depends on where the funds are held. For example, with respect to the liquid funds (cash) in your Solo 401k bank or brokerage account, the bank/brokerage serves as custodian. For alternative investments like real estate, the Solo 401k owner/participant as the trustee serves as custodian by safekeeping the related documents (e.g. property deeds).
Case Study
Let’s say Sara opens both a Solo 401k bank account and a brokerage account. For her real estate purchase, she writes a check from the bank account to secure the property in her Solo 401k’s name. She stores the property deed herself. Over time, Sara uses the brokerage account for stock trading and the bank account to collect rent checks. The bank serves as custodian of cash while Sara retains real estate paperwork as trustee.
