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How to Set up a Solo 401(k) Plan with Fidelity

Solo 401(k) Plan with Fidelity by IRA Financial Group

Solo 401(k) Plan with Fidelity

This article was written in 2016 before IRA Financial Trust opened, IRA Financial’s self-directed retirement company. Now, as an IRA Holder, if you establish a Solo 401(k) Plan with IRA Financial Group, you can open your plan account at IRA Financial Trust. 

IRA Financial Group, the leading provider of Self-Directed Solo 401(k) Plans, and Fidelity work together to allow IRA Financial Group Solo 401(k) clients establish a Checkbook Control Solo 401(k) account with Fidelity with no custodian fees.

IRA Financial Group clients will be able to use IRA Financial Group’s IRS approved Self-Directed Solo 401(k) Plan and open the plan account at Fidelity. You can also open your account at other partners, such as Charles Schwab, E-Trade, and Wells Fargo.

With IRA Financial Group’s Solo 401(k) Plan with Fidelity, you will be able to make traditional investments, such as stocks, as well as alternative asset investments. Alternative investments, also known as non-traditional investments, include:

  • real estate
  • precious metals
  • hard money loans
  • tax liens
  • private business investments

And much more! You will incur NO custodian fees. IRA Financial Group’s IRS approved Solo 401(k) Plan is an open architecture trustee directed plan. This allows you, as the trustee of the plan, to have Checkbook Control over your plan funds directly from your Fidelity account.

As a result of checkbook control, you pay no custodian fees.

The IRA Financial Group Difference

By working with IRA Financial Group to establish your Solo 401(k) Plan, you will gain the ability to make high annual 401(k) plan contributions in pre-tax or Roth (after-tax). You will also have a loan option, which allows you to make traditional as well as alternative asset investments.

Whereas, if you adopt a Solo 401(k) Plan sponsored by Fidelity, you can only make pre-tax contributions. You can’t do Roth/after-tax contribution option. Furthermore, you don’t have a feature. You would be only able to make traditional investments that Fidelity offers.

In other words, you cannot make real estate investments or other alternative asset investments.

So how is this possible?

Open Architecture Structure – Checkbook Control

With a Solo 401(k) Plan, the plan documents set forth the rules governing your Solo 401(k) Plan. IRA Financial Group’s Solo 401(k) Plan documents are open architecture trustee directed, not custodian directed.

As the trustee of the plan, this gives you Checkbook Control over the plan and its assets. IRA Financial Group becomes be the Solo 401(k) Plan document sponsor and Fidelity is your 401(k) plan custodian. The power of Checkbook Control gives you the freedom to make traditional as well as alternative asset investments.

Using IRA Financial Group’s plan documents will allow you to take advantage of a special type of non-prototype plan account offered by Fidelity.

No IRS Reporting Requirements

Unlike an IRA (individual retirement account) where the IRA custodian has specific IRS reporting requirements, with a 401(k) plan the custodian (Fidelity) has no IRS reporting requirements. As a result, because you’re the plan administrator, you’re then responsible for any IRS reporting. This includes filing the IRS Form 5500-EZ (if your plan assets are greater than $250,000).

This is the reason Fidelity will allow you to open your Solo 401(k) Plan account with them and make alternative asset investments using a special type of non-prototype account. However, this is not allowable with an IRA. The 401(k) plan custodian will have no IRS reporting requirements with a trustee directed Solo 401(k) Plan using IRA Financial Group plan documents.

IRA Financial Group Solo 401(k) Plan with Fidelity

IRA Financial Group has a relationship with Fidelity in order to allow you to open a Self-Directed Checkbook Control Solo 401(k) Plan with no custodian fees.

IRA Financial Group will assign you to a retirement tax specialist who will assist you in opening your new Solo 401(k) Plan at Fidelity. Or, you can open it at any other financial institution of your choice.

The process for establishing a Self-Directed Solo 401(k) Plan with Fidelity and IRA Financial Group can be completed in days:

How to Establish a Solo 401(k) Plan with Fidelity and IRA Financial Group

1. Complete a short New Client Intake Form allowing us to customize your IRS approved Self-Directed Solo 401(k) Plan. It will satisfy your retirement, investment, and tax needs.

2. Within 24 hours, your customized Self-Directed Solo 401(k) Plan will be drafted and sent to you for your review.

3. The retirement tax specialist we assign you to will review the plan documents with you.

4. We will assist you in establishing your Self-Directed Solo 401(k) Plan with Fidelity or any other financial institution of your choice. In addition to Fidelity, IRA Financial Group has a relationship with Charles Schwab, E-trade, and Wells Fargo.

5. Once your new Self-Directed Solo 401(k) Plan is open, we will assist you in making a contribution or rolling over existing retirement funds into the plan.

6. You are ready to take advantage of all the benefits your Self-Directed Solo 401(k) Plan has to offer, including:

  • High annual contributions in pre-tax
  • Roth
  • Borrowing up to $50,000
  • Making traditional and alternative asset investments, such as real estate, by simply writing a check or sending a wire from your new plan account.

See the many advantages of establishing a Self-Directed Solo 401(k) Plan with IRA Financial Group and Fidelity.

High Annual Contribution Limits

While an IRA only allows a $5,500 contribution limit (with a $1,000 additional “catch up” contribution for those over age 50), the Solo 401(k) annual contribution limit is $56,000 for 2019 if with an additional $6,000 catch-up contribution for those over age 50 ($62,000).

Additionally, if your spouse generates compensation from the business, he or she can also make high contributions to the plan.

Under the 2019 Solo 401(k) contribution rules, a plan participant under the age of 50 can make a maximum employee deferral contribution in the amount of $19,000.

That amount can be made in pre-tax or after-tax (Roth).

On the profit sharing side, the business can make a 25% profit sharing contribution up to a combined maximum. This includes the employee deferral of $56,000. 20% in the case of a sole proprietorship or single member LLC.

For plan participants over the age of 50, an individual can make a maximum employee deferral contribution in the amount of $19,000. This amount can be in pre-tax or after-tax (Roth).

On the profit sharing side, the business can make a 25% profit sharing contribution up to a combined maximum, including the employee deferral, of $59,000. Again, 20% in the case of a sole proprietorship or single member LLC.

A World of Investment Opportunities

By establishing a Solo 401(k) Plan with IRA Financial Group and opening the plan account with Fidelity, you will be able to invest in almost any type of investment opportunity that you discover.

The income and gains from these investments will flow back into your Solo 401(k) Plan tax-free. Making an investment with your Solo 401(k) Plan is as simple as writing a check. As trustee of the Solo 401(k) Plan, you will have total control over your retirement assets to make real estate and other investments tax-free and without custodian consent.

Loan Feature

While an IRA offers no participant loan feature, by establishing a Solo 401(k) Plan with IRA Financial Group and opening the plan account with Fidelity, you will gain the ability to borrow up to $50,000 or 50% of the account value (whichever is less). You have the opportunity to use the 50,000 for any purpose at a low interest rate.

“Checkbook Control” and No Custodian Fees

When you establish a Solo 401(k) Plan with IRA Financial Group and open the plan account with Fidelity, you can serve as trustee of the plan. Again, as trustee, you gain “Checkbook Control” over the plan’s funds.

Another significant benefit of the Solo 401(k) Plan is that it does not require the participant to hire a bank or trust company to serve as trustee. This flexibility allows the participant to serve in the trustee role. This means that all assets of the 401(k) trust are under the sole authority of the Solo 401k participant.

A Solo 401(k) Plan allows you to eliminate the expense and delays that come with an IRA custodian. This allows you to act fast on any investment opportunity you wish.

Because you can open the Solo 401(k) Plan trust account at any local bank or credit union (i.e., Chase, Wells Fargo, Citibank, etc.), you no longer have to pay custodian fees for the account. You would have to do this in case of an individual retirement account.

Roth Type Contributions

With IRAs, those who earn high incomes cannot contribute to a Roth IRA or convert their IRA to a Roth IRA. However, your IRA Financial Group Solo 401(k) Plan with Fidelity contains a built-in Roth sub-account. You can make contributions without any income restrictions.

With a Roth Solo 401(k) sub-account, you can make Roth type contributions while having the ability to make significantly greater contributions than with an IRA.

After-Tax Contributions

When you establish a Sol 401(k) with IRA Financial Group, you will be able to make after-tax contributions. Unlike pre-tax employee deferral contributions, after-tax contributions can be on a dollar-dollar basis and can be immediately converted to Roth tax-free.

Cost Effective Administration

In general, the Solo 401(k) Plan is easy to operate. By establishing a Solo 401(k) Plan with IRA Financial Group and opening the plan account with Fidelity, there is generally no annual filing requirement. However, if your Solo 401(k) Plan exceeds $250,000 in assets, you will need to file a short information return with the IRS (Form 5500-EZ).

Exemption from UDFI

When an IRA buys real estate that is leveraged with mortgage financing, it creates Unrelated Debt Financed Income (UDFI). This is a type of Unrelated Business Taxable Income (also known as “UBTI or UBIT”) on which taxes must be paid.

However, with a Solo 401(k) Plan, you can use leverage without being subject to the UDFI rules and UBTI tax. So when you establish a Solo 401(k) Plan through IRA Financial Group, then open the plan account with Fidelity, you can buy real estate and use a non-recourse loan without triggering the UBTI tax.

This exemption provides significant tax advantages for using a Solo 401(k) Plan versus an IRA to purchase real estate.

Work with the Leaders

IRA Financial Group is the market’s leading* Self-Directed IRA and Solo 401K Plan provider. We have helped over 12,000 clients establish IRS compliant Self-Directed IRA and Solo 401(k) Plans and invest over $3.8 billion in alternative assets, such as real estate.

IRA Financial Group proudly announces the latest book titled “The Checkbook IRA – Why You Want It, Why You Need It,” written by tax partner Adam Bergman, which is now available on Amazon. This is the second book in a four-part series on self-directed retirement plans. The first book, “Going Solo,” is also available on Amazon.

If you would like to learn more about establishing a Self-Directed Solo 401(k) Plan with IRA Financial Group and opening your plan account with Fidelity, please contact a Solo 401(k) Plan specialist at 800-472-0646.

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Posted in Alternative Assets, Solo 401(k)