A solo 401(k) plan may have both a bank account and a brokerage account. This is possible because it is the same solo 401(k) plan. If you already have a bank account for the solo 401(k) plan, after you open the new solo 401(k) brokerage account, you can move the applicable funds electronically or by check from the bank account to the brokerage account.
Note: This movement of funds is neither reportable nor taxable.
Conversely, if you already opened a brokerage account for the solo 401k plan, then the funds can flow from the existing solo 401k brokerage account to the new solo 401k bank account.
Here are some other items to keep in mind when having both a bank account and a brokerage account for the solo 401k Plan.
If the solo 401k plan has multiple participants (i.e. a husband and wife) and they both want to open brokerage accounts, then separate solo 401k brokerage accounts are needed for each participant. Conversely, if the brokerage accounts are already open, then separate bank accounts will be need to be opened.
One Participant in the Solo 401k Plan
If both participants have multiple sources of funds in the plan (i.e. pre-tax, Roth and voluntary after-tax), separate brokerage accounts are required for each source of funds and for each participant. Conversely, if the brokerage accounts are already open, then separate bank accounts will be need to be opened.
Please see the below illustration.
Two Participants in the Solo 401k Plan
Once the new solo 401k brokerage accounts have been established, the accounts can get funded with funds from the existing solo 401k bank accounts. Funding can be done by check or electronically. The funds would flow directly from the solo 401k bank accounts to the respective solo 401k brokerage accounts to not trigger tax reporting if the funds were first deposited in your personal bank account.
2 Comments
Thanks for this article. In the illustration you show three accounts and distinguish between after-tax and Roth. I though those were the same?
While they are both after-tax funds, Roth solo 401k funds grow tax free whereas voluntary after-tax solo 401k gains are taxable once distributed. As a result, the voluntary after-tax contribution is used to ultimately get more Roth funds in your solo 401k by subsequently (once the voluntary after-tax contribution is made) converting the funds to the Roth account.