Minimum $ amount to open a Solo 401K?

16 Replies

I know it's vulgar to talk about money, but as of today I have $25,862.64 sitting in a 401K from and old employer. The returns are horrific. 

It's not much, but I'd like to put that money to better use by buying a rental property within a solo 401K. I read that I would need a lot more money to do so, but why? Would fees eat away at my funds? Do I need a larger down payment? Any and all advice is welcome. Thanks. 

You need a non-recourse loan and 30-40% for a down payment plus 10-15% for reserves. What is the purchase price of the property you wish to buy? Do you have enough? Most likely not.

Also to be eligible for a Solo 401k you need to have a small business or legitimate self-employment activity. Do you qualify? 

@Georges Martin

If you don't have enough retirement funds to invest in real estate, you could always invest the solo 401k funds in promissory notes secured by real estate. 

If you decide to invest the solo 401k in real estate and need a non-recourse loan, see following for rules and list of lenders.

@Georges Martin

In response to your post title, there usually is no minimum amount needed to open a Solo 401k. When you are opening the deposit account for your plan, some banks have minimum opening balances in the $25-$50 range.

A few ways to work with limited 401k asset balances are to use non-recourse financing (whether from lending institutions or from private lenders), partnering with others, and investing into different asset types.

Thank you all for your very informative responses! @Justin Windham , I've considered investing in notes. Would I be able to invest in crowd funding as well? 

Also, after I open an account, aren't there more fees? I spoke with someone a while ago who said they had a $350 annual fee. At least that is what I remember. That would most likely kill my profits.

Thanks again all!

@Georges Martin

It is possible to invest into notes and/or crowd funding platforms. Fee schedules can vary greatly from one provider to another. I have spoken with several folks who were paying annual fees for custodial accounts in excess of $2,000! Our annual fee is $100, so again, there is a wide range out there.

@Mark Nolan  Does the real estate loan have to be be non recourse for all or just non recourse to the Solo 401k entity?  ie invest solo 401k funds as a limited partner in a real estate transaction, but the general partner has a recourse loan. (only the GP has liability)

@Mark Robertson

Does not have to be non-recourse because the loan is not to the solo 401k.

Me again. Still plotting my escape from the corporate overlords. Haha. I've signed up for the 401K my employer offers. I'll contribute 6% which they'll match. 

I don't qualify for a solo or self directed 401K so I thought I'd roll my old 401K (roughly 26K) into my new one and eventually take a loan from it to buy rental property. Good idea or bad idea?

Georges, if you are planning on borrowing from it this should work. But typically rolling over old 401k into a new 401k is not a good idea because you can rollover into an IRA instead and have more control and investment choices than your current 401k offers.

You can also rollover into self-directed IRA and then invest in alternative assets.

Georges, that would be the requirement for the Solo 401k. Anyone can open self directed IRA, there are no requirements for it.

@Georges Martin For a 401k, "self-employment income" is relatively broad. It can come from 1099 income, from a sole-proprietorship, S-corp, C-corp, LLC, or partnership. It does not have to be your only source of income - it's OK to have W-2 income from an employer and even participate in that employer's 401k plan.

@Bernard Reisz but the income contributed to the S401k must be entirely funded from self-employment funds, yes? Ex: if I have $10k from post-tax W2 employee income, $5k from LLC side hustle, I am not only allowed to fund a S401k from the LLC generated income?

@Cliff H. That's correct - contributions must come from the sponsoring "business."

You could increase the amount of funds in the plan by rolling-over amounts from pre-tax IRAs and, possibly, employer plans.

For example, you could contribute to a Traditional IRA and then roll those funds to your 401k. There would likely be a minimal fee paid to the IRA custodian to send the funds as a non-taxable rollover, but otherwise should be straightforward.

@Cliff H.

Contributions to a solo 401k plan are based on net self-employment from all of your self-employed businesses; therefore, if you have 2 (two) self-employed businesses and one has a greater net loss than the other one that has a net-gain, you would not be able to contribute to the solo 401k for that year.

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