Local Bank or Broker Cash Account for Solo 401k Account

17 Replies

I am about to initiate an i401k and have put in an inquiry with my preferred CU as to whether they can (or actually whether THEY think they can) handle the checking account for it. The assets are currently in an old 401k from my previous employer, at one of the big online brokers. These brokerage companies currently offer cash management accounts with checking and debit card service that function or can function similarly to a standard checking account. I expect I can setup the trust account directly with them. The assets are in company stock, and I don't want to liquidate the assets during the setup process. 

The crux of my question is, is there a particular benefit to having the trust account at a local brick & mortar other than the ability to withdraw or deposit cash (which I don't think would need to occur for the i401k). 

I believe I forgot to pose that question to the plan facilitators I have already contacted (I have not purchased the product yet), and while I know I can call them up again, I have already taken enough of their time for "free" and don't want to take any of their weekend time for business. 

Some banks don't understand these plans, @Dameron Shore , and believe they require a special type of account. They don't. We went to Wells Fargo with our SD401k plan documents and had a regular business checking and savings account set up in an hour.

Brokers are notorious for their high fees and/or limited investment options. They will also limit you to only the products they sell. That is, if you only have an account with Fidelity Investments, you can only invest in what Fidelity offers (stocks, mutual funds, bonds, etc. --- yuck). Fortunately, you only need one plan but are allowed to have as many investment or bank accounts as you want, anywhere you want. Obviously, the investments have to be permissible and the accounts must be in the name of the plan.

Speed and convenience can also be an issue. Many RE transactions are time sensitive and getting money out of a broker can take an act of congress. (You'll learn this when it comes time for a rollover from your current account.) I can go to any Well's Fargo across the country, on any business day, and wire money almost immediately.

Either way, unless you know that your after-fee returns will be greater than anything you can do yourself with real estate, I'd go to a bank. Considering the time value of tax deferred or tax free money, you want a free account.

Out here at least, Wells Fargo has a plan where they automatically transfer $100 from your checking account into the savings account and then immediately reverse the transaction. Truly the dumbest thing I've ever seen, and it makes bookkeeping a bit of a pain, but in return the accounts are completely free. This is the only reason we opened the savings account.

Jeff S Na -Thanks for the reply! It is a SD Solo 401k w/ checkbook control that I am about to initiate (I was just using the shortened "i" for "individual"). The question had more to do with where to open the checking account and if there is a particular benefit to opening one at a local bank vs opening one through an online brokerage. 

I have already inquired with a Credit Union if they think they can/will be able to open a checking account for the trust in the name of the 401k (I know they can; I was in there opening a business account and inquired so see if they know they can). As an alternative to a local brick & mortar, another alternative is a cash management account, such as those offered from Fidelity or Ameritrade, where you can get features such as debit cards, checks, etc and it operates just like a checking account. 

The old 401k is administered by one of the brokerages, and I thought it might be easier/quicker to open the checking account at the same place. Also, I intend to have a brokerage account for the trust, as I intend to make traditional investments through the solo 401k as well as alternative investments. 

I was just trying to figure out if there was an advantage to a local brick & mortar bank for the checking account as opposed to an online bank for the checking account. Cash withdraw & deposit was all that I could think of and I don't think cash would be used often if at all for an investment account (precious metals maybe?). Although, with the online accounts you can still use ATMs, though the max amount is usually lower than your local bank's. That just leaves cash deposits. I don't think using cash would be smart for a 401k account. Any other benefits to the local bank?

@Dameron Shore  

first of all, when it comes to self directed 401k plan assets, you do not want to have any transactions in cash. Remember, you, as trustee of the plan have a fiduciary responsibility to manage/invest plan assets in the best interest of the plan. Why would you want to take a cash withdrawal?? There is no tracking for that. If you need to make a payment to a service provider, please be sure to obtain an invoice/receipt for the work done and pay with check or obtain bank's check (equivalent to money order). You must be able to account for every dollar spent. 

The type of account you will open will depend on what your needs are. Some of my clients use brokerage platform which provides them with the equivalent of a checking account. This way they can trade stocks as well  as having the ability to use their retirement funds for non-traditional investments such as private lending, real estate investing, etc. Most people do not want to invest in the market (that is the reason they set up self-directed 401k in the first place) so all they need is a place to hold their funds (a depository). Checking account at any bank will work for this purpose. The problem is that most bankers under-trained, the have no understanding and are unwilling to learn how to set up one of those accounts. We trained several bankers at several nationwide banks how to do that and connect our clients with them for the baking purposes.

Hope this helps. 

Medium logo 19 1Dmitriy Fomichenko, Sense Financial | [email protected] | (949) 228‑9393 | https://www.sensefinancial.com/free-consultation/ | CA Agent # 01876563

@Dmitriy Fomichenko  

Thanks for the reply Dmitriy! That solidifies my thought process and is consistent with my negative opinion of cash transactions within this style of account. I think a brokerage platform with their checking account equivalent will probably suit me best, as I do intend to maintain some investment in the stock market. 

@Dmitriy Fomichenko

I recently opened a solo 401K and BOA wouldn't open a business account for this unless I had articles of incorporation or a business for this 401k on SUnbiz (in FLorida).  I kept telling him it wasn't a corporation.  Does the checking account need to be a business account?  My 401k is a trust.  I'm not sure how to approach this banker or what to tell him.  Any help would be greatly appreciated.  Thanks.

@Sabrina Fabian

BOA in recent months has been a hit or miss when opening a bank account for the solo 401k. Articles of incorporation do not apply to a solo 401k because it it not registered with the state. In years past, our solo 401k clients have opened the bank account at BOA under the business bank account using the solo 401k trust documents. We have a contact at US Bank and Wells Fargo if you need assistance--send me an email if you would like. The bank account can also be opened at Fidelity Investments and Charles Schwab.

Medium mysolo 401k logoMark Nolan, My Solo 401k Financial | [email protected] | 800‑489‑7571 | https://www.mysolo401k.net/

@Sabrina Fabian

I've heard quite a bit of feedback from Solo 401k trustees who have had similar experiences. BoA has opened accounts for some our clients recently with no issues while other branches have given similar responses to the one you ran into. This seems to be more common in Florida, actually.

I would recommend getting with your Solo 401k provider for additional help. They should have contacts that can get you setup quickly and easily and may even support helping with that particular banker as well.

Medium project 6 discount solo 401k logo update 3 dnJustin Windham, Discount Solo 401k | [email protected] | 800‑716‑1970 | http://www.discountsolo401k.com

DO you happen to have a contact name at BOA that was knowledgeable that my banker could reach out to?  Thanks!

What is the cost to open a solo401 in BOA or Wells Fargo compared to open with some local bank or private firm? Such as $100 per transaction or $500 for one year?
Thanks.

@Huiping Sheng

Solo 401k plans opened by banks and brokerages are usually pretty inexpensive because they restrict you to only investing with that financial institution. It's a bit like getting a $50,000 car for $20,000 because the car can only drive to businesses also owned by the dealer who sold it.

A truly self-directed Solo 401k will cost a bit more to setup, but you can invest into any asset class, including real estate, and you could open an account at just about any brokerage if you wanted traditional assets. These Solo 401k plans are typically in the $500-1200 range for setup.

Medium project 6 discount solo 401k logo update 3 dnJustin Windham, Discount Solo 401k | [email protected] | 800‑716‑1970 | http://www.discountsolo401k.com

Can you send me the contacts that you have at US Bank and Wells Fargo?  I need to get my accounts set up ASAP.

Originally posted by @Mark Nolan :

@Sabrina Fabian

BOA in recent months has been a hit or miss when opening a bank account for the solo 401k. Articles of incorporation do not apply to a solo 401k because it it not registered with the state. In years past, our solo 401k clients have opened the bank account at BOA under the business bank account using the solo 401k trust documents. We have a contact at US Bank and Wells Fargo if you need assistance--send me an email if you would like. The bank account can also be opened at Fidelity Investments and Charles Schwab.

http://www.360southbayproperties.com | CA Agent # 02041166

@David Gwilt , the quality of service you will get from any of those banks would be mediocre (at best) compared to the quality of service that @Kreighton Reed and his team at Solera bank can offer you. He is 100% dedicated working with self-directed clients like yourself. He assisted hundreds of our clients and everyone speaks very highly of him.

Medium logo 19 1Dmitriy Fomichenko, Sense Financial | [email protected] | (949) 228‑9393 | https://www.sensefinancial.com/free-consultation/ | CA Agent # 01876563

These accounts are just "trust accounts".  Most banks and credit unions can open such accounts, but some may get confused if you mention solo 401k, so don't mention it.  Instead just bring your 401k paperwork to them after calling them on the phone and confirming that they can open a "trust account" for you.