Self-Directed Solo 401k for Notes needs LLC?

Question

Hello all,

As the title implies, I have set up my self-directed solo QRP 401k with checkbook control and trying to set up a business account. I know there are three known banks that deal with self-directed accounts but wanted to see if I could establish an account at my local bank. They just need the Articles of Organization to match the 401k, essentially saying there must be an LLC, to open the bank account. The plan is I will be utilizing account for Note investing. Have others gone this route? Experiences?

thanksJared

Alecia Bolton · Answer

What Dmitriy said.  I have a solo401k at Solera and I purchase notes directly in the trust entity.  I didn't set up another LLC.  Your 401k creator should be able to help guide you through this.

Make sure all expenses are done through the trust bank account.

Dmitriy Fomichenko · Answer

The challenge to open a bank account at a local bank is that they don’t understand what is self directed Solo 401K is. And the chances are they might set up the account incorrectly. I would suggest you open account at Solera Bank or Titan Bank.

Chris Seveney · Answer

@Charley Gates

There is of course liability with owning notes, especially if people decide to self service them.

It’s nature of business - typically most case law does allow the borrower only to collect actual damages, so no pain and suffering type of lawsuits. But always risk.

Marco Bario · Answer

@Jared W Smith  I also recommend Solera for your Solo 401k checking account. They have been wonderful to work with.

Don Konipol · Answer

I decided to utilize single purpose remote entities in the form of series LLC about 10 years ago when my retirement 401K (solo, self directed) reached a significant size. Even if a portfolio consists of only mortgage notes, why take the risk?  In Texas a series LLC cost about $400 to set up, have no ongoing fees, and a different “series” of the same LLC can be utilized for each individual asset, doing nothing more than titling the ownership under “LLC Name, Series Number.  Once a year a short form franchise tax form is due, with no payment.  Texas has a system where the form is filled out by answering about 5 questions online, and electronically signing your name.  Each asset is then isolated with respect or any liability, and any risk is isolated to the asset in question.  Further, should foreclosure, deed in lieu, etc occur, there is no need to form another entity to hold title, the same series can hold title with the same asset protection benefits.While I’m on my asset protection soapbox I will share that many investors make the mistake of either going in for very expensive, dubious value asset protection strategies (foreign asset protection trust based in Nevis and held in a Lichtenstein Corporation while being based in Bahamas and managed by a trustee related to the former Bahamian Prime Ministers wife’s third cousin) or don’t want the hassle so have no asset protection at all.  I have learned that there is an intermediate ground which can be used successfully by people with $50k - $10 million in assets.  It involves having a proper level of liability insurance, having assets held in legally separate entities, holding as much assets as possible in creditor exempt qualified retirement accounts, owning homesteaded real estate in Texas or Florida, and setting up limited partnerships in a way to make creditor access to cash difficult so that a creditor is more willing to settle for a relatively smaller payoff.  This is not a one time do it program but a lifetime strategy of advantaged asset protection.  And it’s relatively cheap and takes a relatively small amount of time.

Charley Gates · Answer

As others have indicated, you should not need to have an LLC in addition to the solo 401(k) in order to open a bank checking account.  You can open a checking account in the name of the solo 401(k).

I would consider creating an LLC owned 100% by the solo 401(k) for asset protection purposes if the solo 401(k) was going to foreclose and take ownership of a home.  Ownership of a home carries liability risks which could expose all of the assets of the solo 401(k) to creditor attack in the event of an accident at the home and a judgement that exceeds the amount of the liability insurance policy on the home.

Gina Stern · Answer

Have you tried Valley Bank? They are a small but growing bank who are very good for small and growing businesses?

Charley Gates · Answer

Thank you, Don and Chris.  Excellent thoughts and insights.  I appreciate it.

Best regards,  Charley

Self-Directed Solo 401k for Notes needs LLC?

Most Popular Reply