Investor/Landlord · Farmington Hills, MI · Member since 2011 · 1k+ posts · 1k+ votes
The last couple deals I participated in were funded through my wife's Solo 401k. They were easy to initiate (only needed a mortgage, a note and a trip to the bank to send a wire) and to finalize (received a check via snail mail and sent a discharge of mortgage). Tonight I will be doing paperwork for a deal funded out of my SD IRA. The custodian's paperwork is an additional step. It is not difficult to complete; however, this deal is time sensitive so I will be on the phone with Equity Trust in the morning to make sure they interpret their paperwork correctly. (I have only done around 3 dozen deals through this account. I do know how to fill out the forms but the processing seems almost arbitrary at times.) I do not look forward to that call in the least.
If you have the ability to open a Solo 401k, it is a much easier account to manage.
You are absolutely correct that investing with a plan that provides Checkbook Control is a whole lot easier than having a custodian serve as middleman for the processing of the transaction. Often times, eliminating the processing delay is just as important as eliminating the paperwork and processing fees.
The IRA could be migrated to an IRA LLC format, which would provide you with the same level of control as you have with the Solo 401(k). You'll operate out of a bank account of your choosing and have signing authority.
Of course ETC does not support this model, as it eats into their fee revenue, but there are several other self directed IRA custodians you can work with. Depending on how many assets you hold and of what type (deeds vs notes, for example), the transfer process could get to be a fair bit of paperwork and expense.
The last couple deals I participated in were funded through my wife's Solo 401k. They were easy to initiate (only needed a mortgage, a note and a trip to the bank to send a wire) and to finalize (received a check via snail mail and sent a discharge of mortgage). Tonight I will be doing paperwork for a deal funded out of my SD IRA. The custodian's paperwork is an additional step. It is not difficult to complete; however, this deal is time sensitive so I will be on the phone with Equity Trust in the morning to make sure they interpret their paperwork correctly. (I have only done around 3 dozen deals through this account. I do know how to fill out the forms but the processing seems almost arbitrary at times.) I do not look forward to that call in the least.
If you have the ability to open a Solo 401k, it is a much easier account to manage.
You are correct sir, it is much easier to transact in a Solo 401k than it is an SD IRA, especially when time sensitivity or high frequency of payments out are a concern. Like @Brian Eastman mentioned you can get past this with an IRA LLC model, and most custodians that offer the IRA LLC model will even have reduced fee, as the reporting burden is usually less than an IRA. The Solo 401k is still a more diverse option because of the loan provisions.
To be fair, the Solo 401k does have drawbacks, you need to have a business entity with no employees other than yourself and spouse. The tax reporting for plans under $250k is almost non existent, but above $250K form 5500SF needs to be filed and can be a pain in those uninitiated in qualified plan terminology. I can tell you from working for a fortune 100 financial services firm and now a self-directed IRA custodian that the audit risk is much higher for any plan without a custodian, so keep that in mind.
You should look into your self-directed custody options Jeff, depending on how long ago you opened your account you might find some of the newer custodians are a little more well equipped to handle you. I would suggest looking for a custodian that offers you one point of contact where you can send all requests. That way they are more familiar with the way you operate, which in turn reduces errors and processing times, and you get a more predictable, and hopefully less stressful, result.
Full disclosure I work for Provident Trust Group, a self-directed custodian, so while I am promoting services that we may offer I am not necessarily suggesting you use us for those services, you should do your due diligence and determine which custodian best fits your needs if you decide to move.
Hope that helps, let me know if you have questions!
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
11y
Adam, what are the basis of your statement above that the risk of audit for someone who has a self-directed Solo 401k plan without a custodian is much higher than if he/she had a self-directed custodial IRA?
Professional · Carlsbad, CA · Member since 2012 · 12k+ posts · 1k+ votes
11y
In response to Adam Hershnan's following comment:
"I can tell you from working for a fortune 100 financial services firm and now a self-directed IRA custodian that the audit risk is much higher for any plan without a custodian, so keep that in mind. "
ANSWER: Having worked for several self-directed IRA custodian companies in a compliance officer capacity, I don't necessarily agree with his comments that a plan without a custodian is more likely to get audited. In fact, my experience has been that self-directed IRAs are more frequently audited. What is more, you still have a custodian with a self-directed solo 401k that allows for check writing. Specifically, the bank serves as the custodian of the cash, but the solo 401k trustee serves as the Trustee of the assets (e.g., the real-estate deeds, promissory note paperwork, etc.).
Las Vegas, NV · Member since 2015 · 237 posts · 107 votes
11y
Apologies guys, I have no verifiable stats or facts. I meant to imply in my experience and based on my knowledge from being in a long term relationship with an Internal Revenue Agent Financial Products and Transactions Examiner, but the way I wrote it does make it sound like I have some proof, or stats to back up my position. I don't, the IRS is very mum about audit triggers and risk factors because they don't want the average tax payer to know what to avoid.
So let me rephrase that....
In my experience and/or opinion, any plan without a custodian, or where a participant is the "custodian" is at a higher audit risk than the same plan with a custodian, all else being equal.
To clarify for @Mark Nolan, I don't mean accounts without a custodian, as it seems you're thinking a bank will act as a custodian, which they will, for the account you open. A plan custodian would be responsible for all plan assets, while traditionally at one financial firm, these assets can be at multiple institutions.
Again apologies for my muddled wording in the first post, sometimes I bang these responses out so quickly that I don't take the time I should to review them.
Investor/Landlord · Farmington Hills, MI · Member since 2011 · 1k+ posts · 1k+ votes
11y
ETC came through on this transaction. They processed the transaction without asking for any additional information and without my needing to call. I believe this is two in a row. I hope this means they have improved their process.
ETC came through on this transaction. They processed the transaction without asking for any additional information and without my needing to call. I believe this is two in a row. I hope this means they have improved their process.
Huzzah! Maybe the increased competition has "poked the bear" so to speak. Whatever the reason I'm glad things went smoothly. There is too much negative opinion of self directed alternative asset investing out there, so I am always happy to see a custodian performing well and keeping the industry name clean!