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Solo 401(k) Investments

Solo 401(k) Investments

A Solo 401(k) plan provides the investors with the ability to make almost any type of investment using his or her retirement funds. As trustee of the Solo 401(k) plan, you can make investments (traditional and alternative assets) without the consent of a custodian.

Types of Investments You Can Make

As new investment options emerge, the IRS must continuously update the tax code. As a result, the IRS only describes what a retirement account cannot invest in, not the investments you can make. Except for collectibles and prohibited transactions under IRC section 4975, your Solo 401(k) can invest in virtually any type of investment.

The following is a list of popular investments the IRS permits you to make with your Solo 401(k) retirement funds.

Solo 401(k) Real Estate Investment

You can use your Solo 401(k) to purchase real estate or raw land. Since you are the trustee of the 401(k) Plan, you can make an investment by writing a check from the 401(k)-bank account or wiring funds. The advantage of purchasing real estate with your Solo 401(k) Plan is that all gains are tax-deferred until a distribution is taken. Pre-tax 401(k) distributions are not required until you (the Plan Participant) turns 70 1/2. In the case of a Roth Solo 401(k) Plan, all gains are tax-free.

Because of the tax-deferred or tax-free gains, if you purchase a piece of property with your Solo 401(k) Plan for $100,000 and you later sold the property for $300,000, the $200,000 of gain appreciation is generally tax-free. Whereas, if you used personal funds (non-retirement funds) to purchase property, the gain will be subject to federal income tax and in most cases state income tax.

Solo 401(k) Tax Liens Investment

You can purchase tax deeds and tax liens with a Solo 401(k) Plan. By using a Solo 401(k) Plan to purchase tax-liens or tax deeds, your profits are tax-deferred back into your retirement account until a distribution is taken. Again, pre-tax 401(k) distributions are not required until you turn 70 1/2. Gains are tax-free in the case of a Roth Solo 401(k) Plan.

As trustee of the 401(k) Plan, you have “checkbook control” over your retirement funds allowing you to make purchases on the spot without custodian consent. In other words, purchasing a tax-lien or tax deed is as easy as writing a check!

Solo 401(k) Loans & Notes Investment

You can purchase loans and notes from third parties with your Solo 401(k) plan. By using a Solo 401(k) to make loans or purchase notes from third-parties, all interest payments you receive are tax-deferred until a distribution is taken, but a pre-tax 401(k) distribution is not required until you turn 70 ½. Gains for a Roth Solo 401(k) are tax-free at the time you take a distribution.

For example, if you use a Solo 401(k) to loan money to a friend, all interest flows back into your 401(k) Plan tax-free. Whereas, if you loan your friend money from personal funds (non-retirement funds), the interest will be be subject to federal and in most cases state income tax.

Solo 401(k) Private Businesses Investment

With a Solo 401(k) you are permitted to purchase an interest in a privately held business. The business can be established as any entity other than an S Corporation (i.e. limited liability company, C Corporation, partnership, etc.). When investing in a private business using 401(k) funds, it is important to keep in mind the “Disqualified Person” and “Prohibited Transaction” rules under IRC 4975 and the Unrelated Business Taxable Income rules under IRC 512. The retirement tax professionals at IRA Financial Group will work with you to develop the most tax-efficient structure for using your Solo 401(k) Plan to invest in a private business.

Solo 401(k) Precious Metals & Coins Investment

There are certain precious metals and coins that you can invest in, which can be found in Internal Revenue Code Section 4975. When you use a Solo 401(k) Plan for the purchase of precious metals and/or coins, the value of the asset generally keeps up with (or exceeds) inflation rates better than other investments. Always hold IRS approved precious metals and/or coins (bullion) at an approved depositor or U.S. bank, as defined under Internal Revenue Code Section 408(a).

Solo 401(k) Foreign Currencies Investment

The IRS does approve the investment of foreign currencies, including Iraqi Dinars, with a Solo 401(k) account. It is believed that foreign currency investments offer liquidity advantages to the stock market, along with significant investment opportunities. When you use a Solo 401(k) to purchase foreign currencies, the gains you generate from the foreign currency will be tax-deferred until you take a distribution. In the case of a Roth Solo 401(k) plan, all gains are tax-free.

Solo 401(k) Traditional Investments

In addition to alternative asset investments (non-traditional), you still have the option of making traditional investments with your Solo 401(k) plan. This includes the purchase of stock, bonds, mutual funds, CDs, etc.

We wrote the book on the Solo 401(k)

A simple, yet informative handbook, Going Solo: America’s Best-Kept Retirement Secret for the Self-Employed was written to help small business owners and self-employed individuals discover the many advantages of establishing a Solo 401(k) Plan.

In an effort to eliminate the complexity of how one can establish an individual 401(k) plan, Adam Bergman wrote Solo 401(k) in a Nutshell. The book “…simplifies the process (of establishing a Solo 401(k) while…providing everything one needs to maximize their retirement assets” and gain financial freedom.

Learn more about the books →

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You want to self-direct your 401(k)! Call us at 800-472-1043 or fill out the form and we can help you.