While the bank account(s) for the self-directed solo 401k is commonly opened at major banks such as Bank of America and Wells Fargo bank), some business owners may instead choose to open the solo 401k bank account at their local bank or credit union.
Your local banker or credit union representative will need to be educated on the solo 401k bank account process because he or she will most likely overthink the process. Quite often, the banker will assume that you are seeking to open a solo 401k with the bank, which obviously is not the case. Instead, you simply need to open a bank account for the solo 401k that you adopted through your solo 401k provider.
Following are some tips to take into account when opening the bank account for your self-directed 401k.
Explain that a self-directed 401k falls under the Internal Revenue Code and point the banker to the following IRS website:https://www.irs.gov/retirement-plans/plan-sponsor/401k-resource-guide-plan-sponsors-starting-up-your-plan
Explain that a solo 401k falls under the retirement trust umbrella and that the business owner can serve as the trustee of the 401k trust. The above IRS web page confirms this, and here is the specific language.
“Trusts and trustees. 401(k) plans are funded through a trust established to hold and invest the plan’s assets. At least one trustee is appointed to have responsibility for the activities of the trust and its assets. This is a serious responsibility with considerable potential for liability. Trustees might include the business owner, an employee, or a financial or trust institution.”
Explain that the business owner(s) as trustee(s) direct all investments and decide on the bank or credit union of where to hold the solo 401k trust liquid funds; therefore, the bank will not serve as the trustee of any of the alternative investments (e.g., real estate, precious metals, tax liens, notes, private shares, etc.) and will not administer or safe-keep the solo 401k participant loan documents. Instead, these are responsibilities reserved for the trustee—typically the business owner(s).
Self-Directed 401k Trust Documents: Spoon-feed the banker with the various solo 401k trust documents so not to confuse him or her. First provide the Solo 401k Trust Agreement, which usually suffices as it lists the name of the plan, the name of the trustee(s) and their signatures; however, some banks will also require a Certificate of Trust document, which the solo 401k plan provider can draft at no additional cost.
Common Questions Posed by the Banker When Opening Bank Account(s) for a Solo 401k Trust:
Question. How is account titled?
Answer: The bank account is tiled in the name of the solo 401k trust.
Question: Who is the trustee?
Answer: The business owner is the trustee.
Question: Is the trust revocable or irrevocable?
Answer: This is a revocable trust, and it is not a living trust so it is not registered with the state.
Question: Who has signing authority?
Answer: The solo 401k trustee has signing authority.
Question: What banking features are allowed for the solo 401k trust bank account?
Answer: Check writing, debit cards, ACH, wires and cashier checks are permitted; however, credit cards and personal lines of credit are not.
Here is how bank account for a Solo 401k Trust checking account is generally titled /registered:
Tax Responsible Customer (how the bank account is titled): (enter name of solo 401k trust), F.B.O. (enter name of participant)
Have the bank use the solo 401k plan EIN (employer identification number) for reporting purposes