BACKGROUND:
Solo 401k plans are for self-employed individuals. In order to setup a solo 401k plan, the business cannot employee any full-time W-2 employees who are not owners of the business. The business owners may spouses may also participate in the solo 401k plan provide they also employees of the business.
QUESTIONS:
To clarify, if I want the option for real estate investment and I also want a separate Roth account, I would need to open two separate checking accounts for the self-directed 401K correct? So I would need the solo 401K plan that includes both bank and brokerage accounts? My current 401K plan from a previous employer is with Fidelity so I was planning on using Fidelity for my new solo 401K account through your company. Is there a preferred bank that Fidelity does business with? Would you help me with the set up of the 401K checking accounts or is that something I set up independently under the solo 401K trust? I am not sure how I would do that since it sounds like I need to establish separate accounts for traditional and Roth contributions — would they be set up under the same EIN for the new solo 401K trust?
In the bigger picture, is there a downside to preparing for the real estate investment option but it doesn’t come to fruition in the future? I live in Northern CA where the real estate is very expensive. While it is my intention to rollover my existing 401K funds to the newly established solo 401K account and hopefully use these funds for local real estate investment, this depends on the recovery of my current 401K from the recession and the local housing market.
ANSWERS:
1) This confirms that there needs to be two separate accounts.
2) These two accounts can simply be at Fidelity. While you can have a bank account and a brokerage account, it is not necessary. Please note that Fidelity Investments offers a free checkbook with the account.
3) Each account will be under the same EIN of the Solo 401k.
4) We will certainly prepare the paperwork and assist with opening the accounts (bank and/or brokerage).
5) You can certainly invest the solo 401k in real estate but you don’t have to and there is no deadline to invest.
