Investing Self-Directed Solo 401k Funds in Accounts Receivables (Factoring)

When a business needs funds to cover daily operating expenses or payroll, for example, it will sell its accounts receivables or invoices to an investor.

A self-directed solo 401k may be invested in accounts receivable (factoring). This type of investment falls under the alternative investment category.

While is the responsibility of the solo 401k trustee to determine the terms when investing accounts receivable (factoring), here are common items to consider:

  • The solo 401k plan becomes the factor of the receivables.
  • As with any investment, perform due diligence including reviewing the invoice including the customer making the payment.
  • It is preferable to have recourse in the event of nonpayment.
  • All expenses and income must flow through the solo 401k plan bank or brokerage account.
  • Because the solo 401k pan is the factor, the invoice payments flow back to the solo 401k plan and grow on a tax deferred basis.

SOLO 401(K)