The 401K Trust

Our preferred self-direction tool is the Solo 401K Trust (also called the Individual 401K Trust or Owners 401K Trust). There are a number of reasons for this: It reduces custodian fees and eliminates transactional fees, some better UBIT tax rules, and the penalties for prohibited transactions aren’t quit as bad. You can also fund it faster than an IRA and even when you can’t contribute to an IRA! It starts by creating a Solo 401K Trust (the “Plan”). This trust then opens a bank account at just about any bank. Then you transfer your 401K money from your current custodian (or start making contributions) to the trust’s bank account. Then, boom, you have complete control over your retirement money. There are even ROTH and TRADITIONAL options for you and your spouse!




Lower fees!

Custodians charge transaction fees each and every you buy or sell an investment, collect rent or make a payment. Since the 401K trust does not require a custodian, there are NO transaction fees. Also, some custodians charge a yearly fee based on the value of your account, this can get pretty large! With the 401K Trust, there is a flat yearly fee regardless of how much money you have in it.

Faster transactions!

With a custodian, you have to fill out their paperwork, submit it, wait for them to process it, (pay the transaction fee) and then complete your investment. This can take a week, or longer if you don’t get the paperwork right. Again, with the 401K Trust, there is no custodian. Therefore, you can buy an investment as fast you are able to. This is critical when picking up those desirable investment opportunities.

Build it quicker!

401K accounts have higher contribution limits, even more the $50,000 a  year! For most IRAs, a yearly contribution is limited to $5000. Therefore you can build your retirement faster in a 401K. Your contribution limits will depend on how much money you are making in the business entity that sets it up, but the potential is much higher.

Better on UBIT Taxes and Penalties!

While there may be some tax assessments on assets owned by your retirement accounts, 401Ks can own a leveraged (financed) rental property and not have a tax like it would if it was owned by your IRA. So you have more “tax free” options. Also, in the event of a prohibited transaction, the penalties aren’t as bad as if you did it in your IRA. NOTE: Prohibited transactions are a risk and you should understand how to avoid them.

You can borrower against it!

You can borrow against your self-directed 401K (like any 401K). Remember, as retirement accounts, you can’t touch the money until you are 50 1/2 years old. But in a pinch and you need some cash, you can personally borrow some of your 401K money while you cannot with your IRA money.

NOTE: Prohibited transactions and UBIT taxes are serious considerations when thinking about self-directing any retirement account. You should seek competent legal, tax and investment advice before proceeding. Nothing on the page, or website, is offered as legal, tax or investment advice. Breglio Law Office does NOT provide investment advice or opportunities.

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