Schwab Solo 401k Brokerage Account from My Solo 401k Financial

A Schwab Solo 401k brokerage account with checkbook control from My Solo 401k Financial is ideal for those looking to still have the option to invest in equities while also gaining checkbook control over their retirement funds to invest in alternative investments like real estate, notes, and private equity, for example. This arrangement also allows for solo 401k participant loans.

A Schwab Solo 401k with checkbook control comes with the following features:

Checkbook

Fund Solo 401k alternative investment purchases, e.g., real estate, precious metals, tax liens, promissory notes, private placements, etc. by writing checks from the Solo 401k Schwab brokerage account.

Solo 401k Loan

After we prepare Solo 401k loan documents, process Solo 401k loan directly from the Solo 401k plan Schwab brokerage account.

Brokerage Account

Continue to trade equities and grow your retirement funds tax-deferred, deposit investment gains from your Solo 401k’s alternative investment holdings (e.g., rent check proceeds from real estate) directly into your Solo 401k Schwab brokerage account, and make your annual Solo 401k contributions directly into the brokerage account.

How it works

Charles Schwab is simply providing brokerage accounts for your Solo 401k, and My Solo 401k Financial is your Solo 401k provider. In other words, even though Schwab also offers Solo 401k, their Solo 401k plan document restrict you to only investing in stocks and mutual funds; however, by using our Solo 401k document, which allows you to serve as trustee of the Solo 401k and invest in alternative investments such as real estate, precious metals, tax liens, promissory notes, private stock, etc., as well as process Solo 401k Loan, Schwab is not involved in the administration of the Solo 401k.

Mega Backdoor Roth Solo 401k Using Charles Schwab Brokerage Accounts

Once the new Schwab brokerage accounts have been funded, we will assist you with the Mega backdoor conversion which will entails the following steps:

Step 1: Once the solo 401k voluntary after-tax brokerage account has been set up, you will make the annual contribution to the Voluntary after-tax account.

Step 2:

Option One: convert the solo 401k voluntary after-tax funds to the Roth Solo 401k (a.k.a. in-plan conversion): If the solo 401k voluntary after-tax funds will be convert to the Roth solo 401k brokerage account, You will then convert/move the funds from the voluntary after-tax brokerage account to the Roth solo 401k brokerage account within Schwab.

Option Two: convert the solo 401k voluntary after-tax funds to a Roth IRA Roth: If you choose to convert to a Roth IRA instead. You can move the funds from the voluntary after-tax solo 401k brokerage account to a Roth IRA at Schwab or to an outside Roth IRA.

Step 3: Depending on which type of account (the Roth solo 401k or the Roth IRA) you choose to convert the voluntary after-tax solo 401k funds into, you will need to complete and return the on-line after-tax conversion form so that we can issue the Form 1099-R to report the conversion to the IRS. Once you get to this step, click on the applicable conversion form listed below.

In-Plan Conversion Form

Voluntary After-Tax to Roth Solo 401k

After-Tax to Roth IRA Conversion Form

After-Tax Solo 401k to ROTH IRA

Documents for Opening Schwab Solo 401k Brokerage Account

To open Schwab Solo 401k with checkbook control, you will need to submit My Solo 401k Financial solo 401k plan documents, which we prepare in 24 hours, along with Schwab’s applicable brokerage account forms and checkbook paperwork, which My Solo 401k Financial will complete for you.

Fees Charged by Charles Schwab

Because Schwab is simply holding the funds in a brokerage account under the solo 401k offered by My Solo 401k Financial, the only fees that apply to the Schwab brokerage account are:

Stock trading fees : Zero

outgoing wire fees of $25.00.

Options QUESTION:

I have a self-directed solo 401k that I opened with your company with funds sitting in a non interest bearing bank account. I went to Schwab to transfer some funds so that I could do some trades, including options. They told me with a single 401k account, I could only be approved for a level zero or covered options trading. Is there something somewhere that states differently – such as being able to trade options without owning the underlining stocks?

ANSWER:

While Schwab is of course free to set the terms of their accounts, they may have understood that you were asking about a solo 401(k) provided by Schwab as opposed to opening a brokerage account where the self-directed solo 401k plan is provided by another company such as My Solo 401(k) Financial. You may wish to call back and clarify – specifically, you would be opening a Schwab company retirement account which is the type of account that Schwab opens for our clients. If you wish to open a brokerage account at Schwab for the self-directed solo 401k that we offer, please let us know so that we can prepare the required Schwab documents.

Institutional Brokerage Accounts QUESTION:

I am an advisor. Can the brokerage accounts for the self-directed solo 401k be opened on the Charles Schwab institutional side?

ANSWER:

Yes, we can assist in opening the brokerage accounts on the Schwab institutional side instead of the retail side. Based on experience and feedback from other clients’ advisors, the advisor submits the paperwork to the Schwab advisor portal. We are also happy to submit to the back office as we do with those clients that are opening a non-Institutional account.

Transfer Existing Schwab Individual 401k Question:

I am working on helping a client open a new solo 401k. We are looking at using your company, but we have some questions.

If we move the account over, would we be able to keep some of the assets that are currently held through the 401k plan? or would they all need to be liquidated? We are looking at using Charles Schwab as the custodian, and his current “individual 401k” is located there. We would just need to re-establish the plan, right? and he would be able to keep the investments he currently has?

ANSWER:

Good question, and the quick answer is yes. More specifically, the IRS rules allow for the change from one solo 401k plan provider company to another. This type of change is known as a plan restatement because the self-employed business is not shutting down the 401k plan but rather switching from Schwab as the 401k provider to a company like My Solo 401k Financial as the new self-directed solo 401k provider.

We have found this to be quite common (i.e., where an Individual 401k client at Schwab decides they would still like to use Schwab to hold the funds but would now like to use our company as the new solo 401k plan document provider). Such an arrangement will result in opening new brokerage accounts at Charles Schwab for the self-directed solo 41k that we offer ( we would draft new solo 401k plan documents). Subsequently, we would prepare a Schwab Individual 401k internal transfer form so that they can move the existing cash and securities in-kind to the new self-directed solo 401k brokerage account. Once the new account has been funded, Charles Schwab will then issue a checkbook in the name of the solo 401k plan which can be used to place alternative investments such as real estate, notes, private equity, metals, and tax liens, to name a few. The checkbook can also be used to process the solo 401k participant loan funds as our plan allows for loans. Lastly, we would handle all the necessary paperwork to make this transition happen.

Financial Advisor Question:

I have a quick question: if our client works with you and establishes the Solo 401k at Schwab, and then you all help him roll over his current IRA and SEP IRA into it, can he be invested in stocks and bonds with us as the advisor until he finds real estate opportunities he would like to pursue? In other words, if the account is under our master at Schwab, will we have trading ability, as we do now, in addition to him having a checkbook to purchase other assets such as real estate?

ANSWER:

Yes you should still be able serve as your client’s adviser under the Charles Schwab brokerage account for the self-directed solo 401k plan that we offer which also allows for investing in physical real estate in addition to equities. However, you can ultimately confirm with Schwab if you will need to file any additional adviser forms with them.

Private Investment Question:

While the Schwab brokerage account for the new self-directed solo 401k is being established, do we need to fill any other form or paper work with real estate guys for purchase of shares. their lawyer is preparing the paperwork I can ask them to send once they are ready.

ANSWER:

Since we are not the trustee of the self-directed solo 4o1k plan (you are) you won’t submit any investment paperwork to us nor to Schwab.

Instead, as the trustee of the solo 401k plan you hold on to the investment paperwork.

Once you let us know that the new Schwab brokerage account for the solo 401k has been funded, we will e-mail you the Schwab wire directive that can be faxed to Schwab by you to request the funds for the investment to be sent by wire to the investment sponsor.

Lastly, please see the following procedure when investing a solo 401k plan in private shares.

https://www.mysolo401k.net/solo-401k/private-company-investment/

Brokerage Account Name Question:

Thanks to your help, the brokerage account for my new self-directed solo 401k with checkbook control appears to be open. I noticed a new account listed within my other accounts today and it is titled “Pension Account”. Is this correct for us needing a check book control and brokerage account for our Solo 401K? There may be times in which we invest in stocks and times in which we need to generate a participant loan.

ANSWER:

Schwab Pension Trust Account also known as CRA (Company Retirement Account) is for a self-directed solo 401k, and with this account you will receive a checkbook and it’s a free account. Anything solo 401k related is through us as your plan provider, so the loan process will be through us and not Schwab. Schwab will not handle tax reporting applicable to the solo 401k plan. Tax reporting is part of our services. Please let us know when you are ready to take a Solo 401k participant loan, and we will prepare the required solo 401k loan documents.
The name “Pension Account” can be relabeled once you log on to your Schwab brokerage account to list your solo 401k trust plan name.

Outgoing Wire for Real Estate Investment Question:

Is there any risk that this creates a taxable event?

ANSWER:

The Charles Schwab account is governed by our IRS approved solo 401k plan which allows for investing in alternative investments including real estate, the purpose of the transaction is to purchase real esate and the transaction is not taxable since the pr0perty is being purchased inside the solo 401k. Schwab is not the plan provider (instead we are) and as such their role is to simply serve as the custodian of the cash and they will not perform any tax reporting or compliance support.

Naming the Schwab Brokerage Accounts Question:

Charles Schwab has opened the 3 solo 401k brokerage accounts (pretax, Roth and voluntary after-tax). How do I label them as such so I can easily distinguish them when viewing them on-line?

ANSWER:

The Schwab brokerage accounts for the solo 401k plans all have a zero balance since you recently opened them, so you can label them. After you sign in to view your Schwab brokerage accounts, you will see a list of accounts. You will then click one of the three accounts, then click on “customize” at the top and the following screen pops up where you can rename the account. You would repeat this step for each brokerage account. See the following link for more on this:

http://help.streetsmart.schwab.com/Com/3.50/Content/Accounts_Settings.htm

Convert Voluntary After-Tax Solo 401k Funds to Roth Solo 401k Question:

I recently contributed $56,000 as a 2019 (tax return extension was filed) after-tax contribution to my Solo 401k plan and would like to do an in-plan conversion to Roth solo 401k bucket. I was going to instruct Schwab to move the funds from the After-Tax account to the Roth account. Is there anything else I need to do for you to process the conversion? No income has accrued yet.

ANSWER:

A specific procedure applies. Since we are the solo 401k plan document provider (it is not a Schwab Solo 401k , but schwab is holding the solo 401k funds), we need to document and report the 2020 in-plan conversion of voluntary after-tax funds. Note that conversions are reported in the year that the funds move from the voluntary after tax solo 401k brokerage account to the Roth solo 401k brokerage account. You will need complete and return the “in-plan conversion form” that we provide. Once received, we will then provide instructions for moving the funds from the voluntary after-tax solo 401k brokerage account at Schwab to the Roth solo 401k brokerage account also held at Schwab. We will then finalize the conversion of the voluntary after-tax solo 401k funds to the Roth solo 401k by issuing a Form 1099-R to you and the IRS.

Making Contributions by Check to Schwab Brokerage Accounts For the Self-Directed Solo 401k

One option would be to go to the local Schwab branch and make contributions by paper check (e.g. pre-tax contributions to the pre-tax account, voluntary after-tax contributions to the after-tax account, etc.)

Making Contributions Electronically to Schwab Brokerage Accounts For the Self-Directed Solo 401k

Schwab won’t allow you to electronically transfer funds to the brokerage account from an external account not titled in the name of the solo 401k plan.

One option is to open an account at a bank in the name of the Solo 401k so that you can make contributions to the bank account (which would count as contribution to the plan since in the name of the plan) and then electronically transfer funds from the Solo 401k bank account to the brokerage account at Schwab.
A second option is to open a brokerage account at Schwab in your name, fund the brokerage account in your name, and then transfer the funds from the brokerage account in your name to the brokerage account in the name of the solo 401k plan (subject to the contribution limits, deadline, etc.).

The setup of separate Schwab brokerage accounts for each participant and source of funds (i.e., pretax, roth and voluntary after-tax) is how solo 401k contributions are tracked.

Schwab is providing the brokerage accounts for the solo 401k plan but they are not the solo 401k plan provider.

Schwab is also not the trustee of the solo 401k plan–the business owner(s) is the solo 401k plan trustee.

You, as the solo 401k trustee will properly allocate the solo 401k contribution, and My Solo 401k Financial can assist in performing the solo 401k contribution calculations upon your request.

Do You Recommend Using Charles Schwab for the Self-Directed Solo 401k Brokerage Accounts QUESTION:

Do you recomment using Charles Schwab for the brokerage accunts for the self-directed solo 401k?

ANSWER:

While we don’t strictly recommend specific banks/brokerages, Charles Schwab remains one of the top brokerages where our clients are opening accounts and for those that wish to open accounts at Charles Schwab, we will help prepare the documents needed to do so.

With regards to the issue that you referred to below, we note that per the Schwab website, brokerage accounts have SIPC protection: https://www.schwab.com/legal/sipc-account-protection

As part of the self-directed solo 401k setup process, we will prepare paperwork to open accounts at the bank/brokerage of choice.

Allow for Roth & Voluntary After-Tax Solo 401k Contributions QUESTION:

just received my pre-filled Charles Schwab setup docs from My solo 401k Financial. Can someone please confirm if the Schwab account also allows for Roth solo 401k contributions as well as voluntary after-tax solo 401k contributions?

ANSWER:

The accounts that are opened at Schwab for our clients’ solo 401k plans are simply brokerage accounts governed by third-party Solo 401k plan documents (i.e., My Solo 401k Financial). As such, the features of the solo 401k plan are dictated by the documents (e.g. Roth, voluntary after-tax loans, etc.) rather than the brokerage account provider (Charles Schwab).

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