Hello BiggerPockets family,
I have finally decided to open a solo 401k to help me with my house flipping adventures. I think I am at a point where I have read so much and I have confused myself and started to blur lines. I see that some solo401k (or self-directed or self employed 401ks) cost money to open while others appear to be free, $0 to open and $0 annual maintenance (like Fidelity and TD Ameritrade). I have not called any of the providers yet to get a lowdown on their fee structures or what services they provide. What are the differences between the solo401k providers that charge fees and the ones that don't advertise that they do? I already have a LLC setup. What am I missing?
The Solo 401K's provided by the brokerage houses are designed to enable you to invest in things they sell, not real estate and other private transactions. When I set up my Solo 401K, I tried to keep my money @ TD Ameritrade as the custodian, but they wouldn't do it.
Fidelity, however, does, and so far hasn't charged me any fees. I paid Sense Financial for setup documentation, and there's an annual fee to remain compliant, but that's about it.
The Wall St firms do not offer "self-directed" Solo 401(k) plans with the capacity to invest in non-traditional assets such as real estate. With a plan at say, Fidelity, you can only invest in stocks, bonds, mutual funds, etc. The brokerage makes their money on commissions and load fees, so they charge effectively nothing for the plan (which is limited to suit their business model).
With a truly self-directed Solo 401(k), you are engaging a firm to provide you with a 401(k) trust that is not limited with respect to investment choices. In this case, you are paying for the plan documents (the trust), and if you work with a quality firm, some kind of ongoing access to guidance and support so that you can be aware of the IRS rules as they relate to real estate investments.
I have a soloK and a custodian account with my bank. What is the rate for compliance maintenance with Sense Financial?
First, you need to decide on how you wish to invest your retirement dollars. Retirement accounts such as IRA and 401k can be self-directed, and if you want to be able to do alternative investments then that is what you need. While some institutions might sometimes say that they do provide self-directed accounts, their definition of 'self-directed' is quite different, which means that you can direct your funds only in investments that are offered by them. Fidelity or TD Ameritrade do not offer truly self-directed accounts.
If your goal is to invest in alternative assets however - you need a plan that does not have investment limitations other then was IRS calls "prohibited transactions". And you can also use your self-directed plan to invest in traditional investments (stocks, mutual funds) by setting up for example "Fidelity Non-Prototype Retirement Account". In this case Fidelity is simply providing you an investment platform for your 401k but they are not the retirement document provider.
Hope this helps.
I am little confused... I reviewed my notes of our conversation back in July and at that time you told me that you already had a truly self-directed plan established. Now you are saying that the bank is your custodian...?? If you are referring to non-custodial account for your 401k Trust and wish to switch the company providing you with the documents and support for your plan - your existing plan must be amended and re-stated. Please reach out to me directly and I'll be happy to provide you with further clarification and guidance, I also emailed you...
Thank you so much for the information. Things are clearer now. Brian and Dmitriy, I have reached out to your companies for information and look forward to speaking with representatives to review your solo 401k products. I am still researching but will act fast once my research is done.
Thank you again for all of your help.
You are welcome @Damien Cobbs ! Maria will coordinate with you the appointment, looking forward speaking with you in the next couple days.
@Dmitriy Fomichenko , Yes, Accuplan set up the soloK. The funds are in the bank and I have checkbook control. Does Sense Financial offer a yearly fee or session based options when I have questions about a transaction?
if you are not happy with the services Accuplan provides - you can switch to us or another provider. We provide help, support, training, etc. to our clients only and don't have a specific service that you could 'order' on 'as needed basis'. However, I answered hundreds of questions here on forum over the last several years and as a member of BP community you are welcome to take advantage of BiggerPockets platform to ask your question and get a free answer not only from me buy from other experts as well.
It turns out Accuplan must be the custodian in order to service the account and I understand what Sense Financial is offering as well. Thank you so much for all of your responses and the advice. I know many in the forums appreciate the answers given as well.
It is important to note that real estate cannot be flipped inside a solo 401k plan without subjecting it to UBIT. If you are planning to use retirement funds to flip real estate then the ROBS 401k may be an option since UBIT does not apply to the ROBS. To learn more about the ROBS 401k visit the following post.