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Do I Need a Custodian with a Solo 401(k) Plan?

There are a number of people that make the claim that a Solo 401(k) Plan does not need a Custodian. This statement is not accurate. A Solo 401(k) Plan account must be held with a custodian. A custodian is defined by the Internal Revenue Code as essentially a U.S. bank or financial institution. Unlike a self-directed IRA LLC, which requires a special IRA custodian that will allow for self-directed IRA investments, a Solo 401(k) Plan can be opened at most local banks and even Fidelity. Thus, a custodian account still needs to be established for a Solo 401(k) Plan, but it can generally be opened at any local bank – no special IRA custodian is required.

From an investment standpoint, with IRA Financial Group’s Solo 401(k) Plan, also known as a self-directed 401(k) Plan or individual 401(k) Plan, the IRA holder as trustee of the Plan will be able to control the plan investments. Accordingly, the custodian’s sole role would be to hold the plan account. It would not be responsible for making an investment decisions. In other words, the custodian would not know if the plan has invested in real estate, gold, or private notes, nor would it have any reporting requirements on an annual basis. Unlike an IRA, which requires the IRA custodian to file the IRS Form 5498 each year, with a Solo 401(k) Plan, the plan administrator would be the party responsible for filing the IRS Form 5500-EZ or any other IRS Forms. The beauty of establishing a Solo 401(k) Plan is that from an administration standpoint, only plans with an excess of $250,000 in plan assets is required to file the IRS Form 5500-EZ, which is due July 31. Plans with less than $250,000 would have no annual filing requirements.

Therefore, a solo 401(k) Plan is required to have the account opened at a custodian (i.e. bank or financial institution), however, the plan’s investments would be controlled by the plan trustee and all plan reporting would be done by the Plan administrator.

To learn more about the Solo 401(k) Plan custodian rules, please contact a tax expert at 800-472-0646.

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Posted in Self-Directed IRA, Solo 401(k)