I Don't Need a Custodian nor LLC for a Self-Directed Solo 401k?

Question

Hey Everyone!

I was going to transfer my Individual 401k (currently with Schwab) to a Self-Directed Solo 401k with Provident Trust using them as the Custodian ($495/year) and then also establishing an LLC to which funds would be transferred and controlled.

THEN I saw this on an IRA Financial Group website.

Is it really true that I can establish a Self-directed Solo 401k account with a local bank and then no need for Custodian fees (okay, maybe the bank will charge an annual fee as well), but no need to establish an LLC and pay that set-up fee and annual state tax? And the Solo 401k will be in my name and NOT the Custodian's name?

See this below:

“Checkbook Control”: One of the most popular aspects of the Self-Directed 401K Plan is that it does not require the participant to hire a bank or trust company to serve as trustee. Unlike, an IRA which requires a financial institution to serve as trustee and custodian of the IRA, in the case of a Self-Directed 401K Plan, the plan account can be opened at any local bank or credit union and the plan participant can serve as trustee of the Self-Directed 401K. This flexibility allows the plan participant (you) to gain “checkbook control” over your retirement funds. In essence, all assets of the Self-Directed 401K Plan will be under the sole authority of the 401k participant. A Self-Directed 401K plan allows you to eliminate the expense and delays associated with an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself. With a Self-Directed 401K Plan, making a 401K Plan investment is as simple as writing a check.

IS THIS TRUE?

Justin Windham · Answer

@William DeHaan, Jay is correct. The bank you choose to open a checking account for your 401k trust is not the custodian. Although some custodians do open Solo 401ks, with a 401k there is no custodial requirement. In the typical setup where you have checkbook control of your 401k, there is no custodian involved and this can save you quite a bit of time and money in the long run.

Jay Goldblatt · Answer

Hi William,

Just saw the other question now. The bank is not a custodian per se in this case - they are simply holding the money for you, but do not do any reporting to the IRS for the 401k.

Mark Nolan · Answer

@William DeHaan

Yes the bank would hold the liquid cash.

Jay Goldblatt · Answer

Hi,

Great question. A Self-directed Solo 401k utilizes an approved 401k that a facilitator updates the each year. The legal entity is a Trust. Just like the LLC, it will have its own EIN and you can open a bank account to operate out of it.

This is contrasted with an IRA, which needs a custodian to hold it and an LLC which would go inside it to hold the assets.

Looking forward,

Jay

William DeHaan · Answer

Okay, I see that now, and hence no need for an LLC as the Trustee would have "check writing" authority.

So would not the Bank be the "Custodian" holding the liquid cash?

Mark Nolan · Answer

The following language from the listed IRS website confirms that the solo 401k business owner can serve as trustee of his or her solo 401k plan; however, a custodian is required to hold the liquid cash.

IRS Language“Trusts and trustees. 401(k) plans are funded through a trust established to hold and invest the plan’s assets. At least one trustee is appointed to have responsibility for the activities of the trust and its assets. This is a serious responsibility with considerable potential for liability. Trustees might include the business owner, an employee, or a financial or trust institution.”

http://www.irs.gov/Retirement-Plans/Plan-Sponsor/4...

I Don't Need a Custodian nor LLC for a Self-Directed Solo 401k?

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