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Self-directed Solo 401k Question: Can I Transfer a Promissory Note from my Solo 401k to a Self-directed IRA?
First, one needs to consider the Solo 401k distribution rules. Making Solo 401k Distributions (mysolo401k.net)
Anytime one transferring cash or an asset such as a promissory note out of the solo 401(k), one must consider the rules regarding making Solo 401k distributions.
Generally, one is not to be able to transfer that cash or asset out of the plan until the Solo 401k owner is at least 59 ½ years of age or if the Solo 401k plan is being shut down (e.g. because the self-employed business is closing).
As opposed to cash (or typical brokerage investment such as a mutual fund or publicly traded stocks) which may simply be transferred from the Solo 401k to a standard IRA at Fidelity, Vanguard, etc, alternative investments in the Solo 401k must be transferred to an IRA at at a specialty trust or financial institution that will allow such investment to be held in the IRA.
For the Solo 401k owner, however, transferring the promissory note or other alternative investment to an IRA custodian means that such person no longer has checkbook control over the money right (e.g. repayments of the promissory note now would need to be sent to the IRA custodian after the transfer of the note to the IRA).
For those Solo 401k clients who wish to maintain checkbook control over the assets after the transfer to an IRA, many will first contribute the asset into an LLC that is owned by the Solo 401k and then transfer the membership interest of the LLC to an IRA at an IRA trust/custodian that allows an LLC to be held an IRA. In this case, the Solo 401k owner will still have checkbook control because the member of the LLC will be the Solo 401k owner’s IRA and the solo 401k owner will be the manager of the LLC with checkbook control over the LLC bank account. Please see more: LLC for Solo 401k & Ultimately Transfer the Solo 401k LLC to a Self-Directed IRA LLC – My Solo 401k Financial