Yes you still need to fill out the private investment document section dealing with the fiduciary, as the trustee of the solo 401k plan. Fiduciary and trustee mean the same thing in the context of a solo 401k plan. You would list the solo 401k plan and then sign on behalf of the solo 401k plan.

Traditional 401k plans (i.e., a plan sponsored by the Walmarts and Home Depots of the world) employ invesment fiduciairies but solo 401k plans for the self-employed don’t employ investment fiduciaries. Instead the business owner serves as his or her own trustee of the solo 401k plan.

Pooling Both Pretax and Roth Solo 401k funds for Private Investment QUESTION:

ANSWER:

It is important that the investment is documented (i.e., the subscription agreement is properly filled out) in the name of the Solo 401k and that the EIN for the Solo 401k is used for any reporting that is performed by the private investment sponsor resulting from the solo 401k investment. For example the Schedule K-1 (Form 1065) will need to be issued in the name of the solo 401k using the plan’s EIN.

Moreover, you will sign the private investment documents since you are the trustee of the Solo 401k.

If you invest both pretax and Roth solo 401k funds in the same private investment, it is deemed an investment by one solo 401k plan, just by different solo 401k fund source types.

Therefore, from an investment perspective, funds would flow to the private investment sponsors bank account from both the solo 401k prtax bank/brokerage account and the Roth solo 401k bank/brokerage account, so two checks or wires would be sent.

Then, once the private investment sponsor sends distributions, they would flow back to the solo 401k bank/brokerage accounts. However, it would be acceptable for administrative ease for all the returns on the investments (e.g. dividends) to flow back to one single solo 401k bank/brokerage account and then the funds can be divided between the pretax and Roth solo 401k bank/brokerage accounts based on the investment percentages.

During last year’s tax-prep season, I received a total of sixteen 1099s and K-1s filed against the EIN of my solo-401k.  I ignored these (for the second consecutive year).

My solo 401k trust is a member of a private investment fund. Do I need to file the K-1 and 1099-DIV with the IRS?

K-1 Issued to Solo 401k QUESTION:

ANSWER:

I understand that the K-1 is issued to the Solo 401k (and under the EIN for the Solo 401k) for investments made via the Solo 401k.  In that case, any gains are on a tax-deferred basis since in the Solo 401k.  Please simply keep the K-1 in your records.

How to Fill Out Subscription Agreement QUESTIONS:

Here is the raw text, if useful…

Employee Benefit Plan Information

◻ Yes ◻ No Investor is an “employee benefit plan” as defined in Section 3(3) of ERISA that is subject to the fiduciary provisions of ERISA (this includes U.S. pension plans and U.S. profit-sharing and 401(k) plans, “Multiemployer Plans” and “Taft-Hartley Plans” but does not include U.S. governmental plans, certain church plans and non-U.S. employee pension and welfare benefit plans).

◻ Yes ◻ No Investor is a plan as described in IRC Section 4975(e)(1) (e.g., U.S. individual retirement account, Keogh Plan).

◻ Yes ◻ No Investor is an insurance company investing the assets of its general account (or the assets of a wholly owned subsidiary of its general account), the underlying assets of which constitute “plan assets” within the meaning of Section 401(c) of ERISA.

◻ Yes ◻ No Investor’s underlying assets include “plan assets”, either by reason of investment by “benefit plan investors” (as defined in 29 C.F.R. 2510.3-101(f)) in a class of equity interests of Investor in an amount equal to 25% or more of the value of such class of equity interests (excluding for this purpose the value of any equity interests held by any person, other than a benefit plan investor, that has any discretionary authority or control with respect to the assets of the Investor or provides investment advice for a fee with response to such assets, or any affiliate of any such person), or for any other reason. Select yes if the solo 401k plan will owns 25% of more interest of the investment. This question appears to deal with the Plan Asset Rules which apply to self-employed solo 401k plans including solo 401k plans. 

◻ Yes ◻No Investor is an “employee benefit plan” as defined in Section 3(3) of ERISA not subject to the fiduciary responsibility provisions of ERISA. Check no as a solo 401k plan is defined contribution plan not a DBP. 

 

• Please consider the sections of the subscription agreement that address ERISA and unrelated business income tax (which is referred to as “unrelated business taxable income” in the document).
• If you choose to proceed you will, of course, be investing via the Solo 401k which means practically the following:
  • The Document must be in the name of the Solo 401k where you sign as the Trustee;
  • Use the EIN for the Solo 401k;
  • The Solo 401k is a revocable retirement trust and for any date organized you would use the effective adoption date which is found on page 2 of the Adoption Agreement;
  • If the subscription requires you to do so, please note that the Solo 401k is a self-directed employee benefit plan;
  • If a W-9 is required, it should be completed as follows.

ANSWER:

Considerations Regarding Private Equity Investments:

Fort those  contemplating investing their solo 401k in an LLC/private placement investment.

(1) It is acceptable provided that (i) you (nor any closed related persons) are not working for the entity/investment provider in which you intend to invest retirement funds; (ii) you (nor any closed related persons) do not hold any ownership position personally in the entity in which you intend to invest retirement funds; and (iii) you (nor any closed related persons) otherwise do not have a relationship with this entity either in your own name or through an entity that you control (e.g. you are not a landlord, lender, vendor, etc.).

(2) The investment must be titled in the name of the Solo 401k with funds flowing from the Solo 401k account(s) and any return on the investment flowing back to the Solo 401k account(s).

(3) If the investment is structured as equity (e.g. stock in a corporation, membership interest in an LLC, etc.) the investment may be subject to unrelated business income tax if (I) the entity is an active business (e.g. providing goods or services) and (ii) the entity is NOT taxed as a C Corporation.  If investment is structured as debt there is no unrelated business income tax issue as long as it is TRUE debt (e.g. some debt can be converted to equity such as a convertible note).  Please see the following links for more information:

• Private Placement
• UBIT

Additional Considerations Re Solo 401k Private Placement Investments

• Please consider any sections of the subscription agreement that address ERISA and unrelated business income tax.
• If you choose to proceed you will, of course, be investing via the Solo 401k which means practically the following: The Document must be in the name of the Solo 401k where you sign as the Trustee;

o    Use the EIN for the Solo 401k (e.g. if the provider issues a k-1 it will be very important that it does so under the EIN of the Solo 401k)

o    The Solo 401k is a revocable retirement trust and for any date organized you would use the effective adoption date which is found on page 2 of the Adoption Agreement;

o    If the subscription requires you to do so, please note that the Solo 401k is a self-directed employee benefit plan;

o    If a W-9 is required: see  https://www.mysolo401k.net/solo-401k/w-9-for-solo-401k-plan-how-to-complete-w-9-for-solo-401k-plan/