Why to self-trustee your Solo 401k plan: An argument for direct possession of your assets December 18, 2008
Posted by Jeff Nabers in : Money, Personal Enjoyment, Personal Productivity, Precious Metals, real estate, Self Directed IRA Solo 401k , add a comment
We have seen some unbelievable things over the past few years… especially the past few months. The only thing certain is that there is a lot of uncertainty ahead. If you haven’t already done so, right now I strongly suggest you watch the 30 minute condensed version of the film I.O.U.S.A. This film features David Walker, the former U.S. Comptroller General… aka the chief accountant of the government. He tried to fix the government’s financial problems, but Dick Cheney and others told him he needed to stop because they didn’t need solving. So he stepped down from his position and decided to prove to the world just how bad of shape our government really is in.
Today some people, including congressmen, are promoting some very extreme ideas. Some of these ideas involve the government “nationalizing” (or “confiscating” for those of us who speak directly) the assets of the people. Some plans even call for confiscation of retirement account assets specifically. In one scheme called the “Guaranteed Retirement Account” all retirement assets would be liquidated and handed over the Social Security Administration for investment management in a program that would provide a guaranteed return of 3% per year. This kind of silliness doesn’t need to be gratified by anything more than a brief response:
- We’ve already seen how well the Social Security Administration manages money. It simply doesn’t. There is no money. There is no account. It just hands its income straight over to the general spending account of the government, and (not surprisingly) it gets spent!
- Liquidating $16 trillion is impossible. It would crash the securities market entirely, and $16 trillion would not be withdrawn. If you started liquidating people’s retirement accounts alphabetically by name, those with names that start with letters n through z would receive little to nothing because of the price free fall created by the first half of the mass sell off.
- The real world cost of living increases do not jive with published CPI figures, and there is often a discrepancy of much more than a few percent. A 3% return on investment would likely be a steady loss of principal when accurately indexing for inflation.
While we may not see that particular scheme enacted into law, it can’t be ignored that this type of solution is being considered. This government theft approach isn’t unheard of. In fact, Argentina just did it! Don’t forget that (more…)
Nabers Group Solo 401k vs. Custodian Solo 401k December 12, 2008
Posted by Jeff Nabers in : Self Directed IRA Solo 401k , add a comment
After being asked “What’s the difference between your Solo 401(k) and one offered by a custodian?” for the umpteenth time in the past few months, I figured it’s about time to write a post about it.
Why custodians exist
IRAs are governed by section 408 of the Internal Revenue Code. There they are defined as a retirement savings account trust where the trustee is a bank or a trust company (a trust company is basically a bank that holds assets but doesn’t make loans). This role is often referred to as custodian. Self directed IRAs have been in use for decades, and so self directed IRA custodians have been around for decades as well. For IRAs, there is no choice… you must hire a custodian to serve as trustee to your IRA.
The trustee role of a self directed IRA
The term “custodian” comes about in IRC Section 408 because when a bank or trust company serves the trustee role, they are not being trustee in the traditional sense. Usually the trustee of a trust makes decisions and has discretion over handling the income and assets of that trust. With an IRA, this normally isn’t the case. The bank or trust company is not making decisions or providing any other services other than custody (holding assets as an intermediary), and that’s why they are usually referred to as “custodian” – because they don’t provide any services other than custody.
Solo 401(k) is not required to have a custodian
Internal Revenue Code Section 401, which governs all 401(k) plans, does not issue any restrictions on who can serve as trustee. Not too many people have figured this out yet because the self directed Solo 401k wasn’t available until 2006. The benefits of a Solo 401k (such as higher contribution limits and reduced administrative requirements) come from the fact that you can play multiple roles. You can make higher contributions by serving the roles of employee/participant and employer. But it doesn’t stop there. The participant can also serve as administrator and trustee.
The role of administrator for a Solo 401k
An administrator simply keeps records. For a self directed Solo 401(k), a diligent investor is already keeping the records that an administrator would. These include bank statements, brokerage statements, copies of real estate purchase contracts and leases, and generally whatever paperwork accompanies a transaction of the plan. Since the self directed investor should already keep these records, it isn’t necessary or beneficial to hire another company to also keep the same records. Hiring an administrator for a self directed Solo 401k simply introduces unnecessary, undesirable fees.
The role of trustee for a Solo 401k
The trustee is simply the person or company who handles the transactions of the Solo 401k trust. As an investor, if you were to hire a custodian, (more…)
Checkbook Control 2.0 (for the self employed) May 13, 2008
Posted by Jeff Nabers in : Self Directed IRA Solo 401k , 28commentsWith tens of thousands of self directed IRA investors utilizing LLC structures to enjoy “checkbook control” authority of their self directed IRA investments, this post may serve as great news for those who aim to follow suit.
Solo 401(k) retirement plans can grant direct checkbook control without the use of an LLC or custodian.
The concept of custodian comes from Internal Revenue Code Section 408(a)(2) and is defined in Section 408(n). This entire IRC section 408 is devoted to Individual Retirement Accounts, or IRAs. The code basically explains that an IRA is normally a trust, and the trustee must be a bank. It then defines bank as a bank, trust company, or any company specifically approved by the IRS. This capacity of trustee to an IRA is known as “custodian”. This trustee role is simply that of investing the plan as directed by the accountholder.
A Solo 401(k) plan is a type of 401(k) that is designed for self employed individuals whose businesses have no full time employees. All 401(k) plans are qualified plans, and qualified plans do not have any special restrictions on who can serve as trustee.
So the significant difference is that with a Solo 401(k), the participant can actually be the trustee and handle (more…)
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