More Self-Directed 401k: What kind of Bank Will Open One?

Question

As mentioned in another post, I am doing my research about opening a self-directed Solo 401k. Sunwest Trust was mentioned here on Bigger Pockets as a no-frills option. I contacted them and ended up with another question.

This is about their "Paperwork Only" plan. To simplify what Sunwest told me: they will do the paperwork that creates a Self-Directed Solo 401k, but that's about it. I file this paperwork with the IRS myself, and I have to enlist another bank to actually hold the account, the custodian, as it were. They refused to offer me any advice as to what kind of institution would set up such an account for me.

I'm not ready to dismiss this idea out-of-hand. But now I have no idea where to go to find such a bank. I have tried my credit union, a local bank, Charles Schwab - none of these will do this. First Republic said they would but I am short of their $250k minimum. I believe I could search like this for days.

Does anyone have any suggestions for banks or institutions that will simply hold the account? Or can someone tell me what I should be googling?

I realize there are other options such as going with another institution that will do the whole shebang. I might go that route, but I want to find out everything I can about this option.

Thanks!

George Blower · Answer

@Hjiorst Fjioords

Here are considerations in choosing a Solo 401k provider and bank to provide the account:

Solo 401k Bank Account Considerations:

Here are some general considerations:

• If you want access to bank checks, a debit card and/or the ability to ACH funds out, you will need a bank, credit union etc. rather than a brokerage.
• There are 100s of banks and credit unions that have opened accounts for a Solo 401k.
• Keep in mind that the bank's role is limited to simply providing the account (i.e. no tax reporting, no recordkeeping, etc.) such you may wish to de-prioritize familiarity with Solo 401k plans and focus on other things that are important to you (i.e. branch locations, fees, etc.).
• If you want the ability to invest in stocks, mutual funds, etc., you will need a brokerage account.
• Many brokerage firms will open "free" accounts (i.e. no setup fee, no maintenance fee), which will also come with checkbook access and the ability to wire funds out such that they function as a "hybrid" between a bank and/or brokerage account.

If you are looking for names of banks that open bank accounts for Solo 401k plans, there are many banks where we have received positive feedback including Wells Fargo, Bank of America, PNC along with local banks and credit unions just to name a few. As I mentioned, the bank's role is limited so you don't need a specialized bank.

Considerations in Choosing a Solo 401k Provider:

1. Confirm that the provider has a pristine reputation (e.g. Better Business Bureau reviews, etc.).

2. You may wish to confirm that the new 401k provider has experience with the particular investments in which you intend to invest your retirement funds as you very likely will have questions in terms of the mechanics (e.g. how do you invest in real estate, etc.).

3. You may wish to confirm that the new 401k provider will handle the ongoing compliance support such as any required 5500 filing (e.g. 5500-ez for a one-participant plan with assets in excess of $250,000), any required tax reporting (e.g. 1099-r in the event of a distribution or in-plan Roth conversion), mandatory plan updates and amendments, etc.

4. If you might take a 401k loan, you may wish to confirm that the new 401k provider will prepare the required 401k participant loan documents.

Christa S Rickard · Answer

I did a bunch of research on this topic as I had never heard of a solo 401K until I came to BiggerPockets. I ended up choosing Sense Financial to help me set it up. Dimitri is on here quite frequently but you can also look up him or his company on Bigger Pockets or on the web. I believe he gives a discount for BiggerPockets Pro members. He explained how the process works, sent me all the documents that I needed to fill out, and commended a bank that will handle the bank account part. Dimitri also got the EIN number, filed all the paperwork to initially establish the account, and takes care of filing the annual IRS paperwork to maintain it. All I do is manage the money in the account, meaning use it to buy investments. That's something I personally like about using his company. And why I would strongly suggest that you find a company that does this as a business. There are too many legal requirements and documents that you have to deal with to use a solo 401k. I would much rather pay a fee for somebody who knows how to do it and takes care of that stuff for me so I stay compliant, instead of getting in trouble with the IRS and my investments and losing tons of money as a result.

Dimitri has been wonderful and I would highly recommend his company, Sense Financial. I've tried to at him in this post a couple times, for some reason my tablet will not pull up any names so I can create a link. But you can do a search on him and you should find him pretty easily. There are a few other companies who just do solo 401k set up and maintenance as well. I recommend that you find a company that just does that and let them handle all of the legality of paper work and filings so you can focus on investing.

Hjiorst Fjioords · Answer

Thank you all for the suggestions. I have been pestering a couple potential providers with questions regarding what they provide, whether they subcontract the work, are they claiming the work as their own (for liability sake) or simply "recommending" a legal service that does trusts, etc..

What I find interesting is the wide range of ways that the many firms advertising this kind of service actually accomplish it. Some are banks that sub the trust creation work. Several are trust creation firms that take ownership of the work, and who partner with a bank to provide the account. Some seem to subcontract the trust work and leave you on your own to find a bank. Then there is one (I found) who will provide you with the trust documents, but you file them, get your own EIN, and your own bank to hold the trust. Not that this wouldn't be a perfectly valid approach for someone more experienced than I.

Not so surprising is the very wide range of costs for the service, both the up-front and the manual or monthly fee. I have not seen any necessarily one-to-one correspondence between how much one pays and what one gets.

If I find the time, I'll publish a write-up of what Ive learned. Not even BP has all the important details in one place.

Todd Goedeke · Answer

@Christa S Rickard, Sense Financial is not a bank.

Any local bank can open up the account. Go to people like Dmitry ,IRA Financial Group, George Blower and his firm , or Justin Wyndham and his firm to get the plan set up. If you need tax advice realize that only a few people are licensed tax attys and may or may not work at the above mentioned firms.

Justin Windham · Answer

Solera is a great bank to work with for Solo 401k plans. Although they are local to me, they open accounts online for clients located all over.

Brian Eastman · Answer

@Hjiorst Fjioords

I'll save you the effort. Dismiss that idea out of hand.

A Solo 401(k) is not a set of documents and a pat on the back. A Solo 401(k) is a qualified employer retirement plan that requires proper administration and usage.

Custodians like Sunwest offer the plan because they want to maximize market share, not because the product is beneficial to the client.

If you can find a tax attorney or CPA to help you with such a plan, expect to pay them $400+ per hour for their services. Have you saved any money? No. Otherwise, you'll be out here on Bigger Pockets hoping the internet can support you in the use of your plan.

I cannot count how many times over the years we have been contacted by folks who bought a set of documents, have no idea what they are doing, and have no place to go for support. Worse yet, a lot of those folks have in some way destroyed their plan through lack of proper administration or by engaging in a prohibited transaction.

Find a provider that implements and fully supports the Solo 401(k) plan. It will be by far the better way to go.

Bernard Reisz · Answer

@Hjiorst Fjioords You should certainly do extensive research prior to selecting a provider. Well-done research will make you an educated consumer and aid in your search for the right provider. Even after extensive research, you must feel extreme confidence in your provider, as there a many "unknown unknowns" that research won't uncover - and it's your choice of service provider that will determine how well those "unknown unknowns" are navigated.

Christa S Rickard · Answer

Todd,

I didn't say that Sense Financial was a bank. I said that Dmitriy recommended a bank. I chose Solera for the bank to house my solo 401k.

Justin Windham · Answer

@Hjiorst Fjioords

I would be interested to read your write-up. As you've learned, there is a broad range of pricing and services offered in the industry.

More Self-Directed 401k: What kind of Bank Will Open One?

More Self-Directed 401k: What kind of Bank Will Open One?

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