Private Company Investment

Self-Directed Solo 401k Private Company Investment (passive only) Purchase Procedure

Summary

This is a summary of how to invest/purchase private shares in a private company (e.g., C Corp., LLC, and Limited Partnership) with your Solo 401k—also referred to as Self-Directed 401k, Self-Directed Solo 401k, Solo K, Individual 401k or Single 401k.

After you have opened and funded your Solo 401k checking account, here are the next steps in the private investment process.

Documents/forms provided by investment entity

  • Private Placement Memorandum/Offering Memorandum
  • Articles of Organization
  • Certificate from Secretary of State
  • Subscription Agreement/Stock Purchase Agreement
  • Accredited Investor Representations and Investor Questionnaire
  • Depending on investment entity type, one of the following:

If Corporation: Company By-Laws

If LLC: Operating Agreement

If Limited Partnership: Partnership Agreement

  • Additional documents to help determine if company will be successful:

Company’s latest Financial statements (for example, Balance Sheet)

Company’s 2 to 5 year financial forecast

Registering /titling investment documents

Review and confirm that private investment documents are:

  • Properly registered under the Solo 401k as the owner
  • That the Solo 401k’s EIN is listed
  • That you have signed as trustee of the Solo 401k

Example of how your Solo 401k’s investment interest in the entity should read:

Jane Do, Trustee of ABC Solo 401k Trust

Funding Investment

After all documents have been reviewed, approved and executed, it’s time to fund the investment by writing a check from your Solo 401k’s checking account made payable to the investment entity.

Ongoing maintenance

All investment gains must flow back to your Solo 401k’s checking account not your personal bank account.

Fiduciary QUESTION:

I would like to use funds from my solo 401k to invest in a private placement fund.   I explained to the gentleman who is assisting me with the subscription agreement that I do not need a independent fiduciary.  As the trustee of the solo401k, I am able to make decisions for the account without a fiduciary.  He sent me the attached supplement to the subscription agreement to complete.  In reading it, I do not believe this supplement applies to me.  Is this correct?  Any feedback would be greatly appreciated.

ANSWER:

Yes you still need to fill out since you are the trustee. Fiduciary and trustee mean the same thing in the context of a solo 401k plan.
You would list the solo 4o1k plan and then sign on behalf of the solo 401k plan.

1099-DIV & K-1 QUESTION:

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?

ANSWER:

The fund needs to issue them to satisfy their reporting. However, since a solo 401k is a tax-sheltered retirement account, the funds won’t be taxed until distributions begin, and the distributions will be tax free if withdrawn from the Roth Solo 401k side.
The 1099-DIV forms were issued in the name of the solo 401k and the plan’s EIN was used in the recipients i identification number box so the IRS will be able to tie it to the solo 401k plan’s EIN.
The solo 401k trustee holds on to them for their records but they are not required to file them with the government.

 

This information is for informational purposes. For information specific to your investment situation, MySolo401k.net recommends consulting with a qualified tax advisor, CPA, financial planner or investment manager. MySolo401k.net is 401k provider; therefore, it does not offer investment or tax advice, nor sell investments.

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