Solo 401k Questions: Brokerage, Bank Account, REITs, Contributions

Thanks for your time on the phone today to discuss the Solo 401k.


1.       I currently max out a 401k at my employer

2.       I have a Sole Proprietorship and employ my wife full-time and my kids part-time (we are both over age 50)

3.       My wife and I have Personal 401Ks at Fidelity that we have been funding from the Sole Proprietorship, each valued at about $56K

4.       We have SEP IRA that are worth $340K (Don) and $100K (Spouse)

5.       We have a financial advisor that wants to put us in private placement REITs and is recommending we need to go to a self-directed qualified plan (mysolo401K)

6.       Gross receipts from the business are between $120-180K with business expenses (excluding salaries) of $40-60K to there is $80-120K salary/profit available for contributions


QUESTION 1: What is the best structure and strategy to maximize retirement contributions for 2013 and beyond with the mysolo401K?

a.       maximum Solo 401(k) contribution = maximum profit sharing contribution + maximum salary deferral

i.      Don max salary deferral = $23K

ii.      Spouse max salary deferral = $23K (Total $46K)

iii.      Don max profit sharing with limit of $51K total

iv.      Correct?

b.      What am I missing?

ANSWER: You will need to ultimately consult with your personal accountant regarding your particular strategy. Nonetheless, here is my two cents.

When you are a sole proprietor, contributions to a solo 401k are based on line 31, Net Profit, of schedule C. This is the starting figure. Subsequently, you have to subtract ½ of self-employment tax. You can use our online Solo 401k contribution calculator to calculate both the profit sharing and employee contributions. You just need to plug in the net-income figure and the calculator will subtract the ½ of self-employment for you.

QUESTION 2:  It appears there needs to be a financial institution linked to the account for checking/transaction purposes

a.       How would this work if we stay with Fidelity or other bank?

i.      Roll-over the existing Individual 401K?

ii.      What do I need to know?

ANSWER: Thank solo 401k bank account makes sense if you do not plan to continue to trade stocks and mutual funds, but rather invest in alternative investments such as real estate, private placements, promissory notes, tax liens, etc., however, the solo 401k brokerage account makes more sense if you want to still retain the option to invest in equities, while gaining the option to invest in alternative investments  like real estate or private companies by writing a check from the solo 401k brokerage account since you are the solo 401k trustee. Click here to learn about what the IRS says regarding the role of the Solo 401k trustee.

Please click on following links to learn about the brokerage account vs. the bank account for a solo 401k.

Solo Fidelity Brokerage Account

Solo TD Ameritrade Brokerage Account

Solo 401k Charles Schwab Brokerage Account

Solo 401k Bank Account

QUESTION 3: It appears we can roll the SEPs into the solo 401k as well, correct?

a.       Any reason not to?

ANSWER: Yes the IRS rules permit the transfer/rollover of SEP IRAs into a solo 401k.

Lastly, note that two bank accounts or brokerage accounts are required, one for each solo 401k participant. Visit multiple solo 401k bank or brokerage accounts to learn more.


DP in CA

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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