Solo Roth 401K

[Fx93]

"This is for USA based readers ONLY. Rest of the world .... move along please," quoting macman.

Wow, I just discovered this. It is better than a self-directed Roth IRA and is the ultimate trading vehicle! The catch is that you have to create a business that at least makes a little money each year. I figured I'd start this thread for the low down on how to get this going.

The main advantage to me is that I can contribute $17k a year into the Roth portion, which is about 3.5x the amount as in a regular Roth IRA ($5k). I'm not interested in the company match portion atm, which is why I just need a dummy business that at least aims to make a little money each year.

Some sites offering to get one started:

IRA Financial Group: http://www.irafinancialgroup.com/solo401k.php
Broad Financial: http://www.broadfinancial.com/Solo_401k/solo_401k.html
Safeguard Financial: http://www.ira123.com/solo-401k/

I'm not sure about the fees involved to get this started, it may be $1k or more. Afterwards, supposedly you have a bank account that is your solo Roth 401k, where you can write checks to any forex broker you want.

Anyone self-employed can get this going, but if you have a regular job you can as well by starting a little side business. As far as 1099 (independent contractor) jobs, the most common are those courier or expedite driving jobs. I was thinking starting one's own forex signal service by signing on with Zulutrade or tradency might suffice.

I am looking for advice on the cheapest way to start a business like this, and ideas on what types may generate a little profit per year. I don't need it to be very profitable, as I am only interested in the 3.5x Roth contributions. Anyone with info feel free to chime in. Thanks.

[Captain Jack]

I have self directed accounts through Equity Trust Company: www.trustetc.com and they offer the solo 401k's as well. There are many options and they can give you a lot of info on this. A signal service will work as it is something I've discussed with them as well.

[Fx93]

I'd like to do it without a trust company that charges fees, i.e. make myself the trustee. Apparently it's possible via the links I've posted where a bank account you establish houses your 401K funds.

"Name Yourself Trustee & Plan Administrator
Another option that many people do not realize that they have is to name themselves the trustees of their accounts. With this type of account, you can actually be your own trustee. This means that you can put the money anywhere you want, and it will still count as a solo 401k. When you do this, you will have to file some basic paperwork with the IRS, but this process is not very difficult. By doing this, you will be able to avoid custodian fees.

Tax Filing
The only IRS filing that is required is when the assets in the plan ex-ceed $250,000. At that point, you, or your accountant, will fill out an IRS Form 5500EZ which is purely informational. No other filings are required."


I actually think starting a sole proprietorship or LLC in forex trading itself would be the better route for me, as I would have more profits from it and could use those to make deposits in the solo Roth 401K, especially if I ever went full time with it and didn't have another job. I admit I'm fairly clueless about this stuff, but if I get it sorted out I'll post about it.

[garyfritz]

Apparently it's possible via the links I've posted where a bank account you establish houses your 401K funds.

The HECK you say. You mean I've been paying $300-400 per year for the last 20 years for NOTHING!? And the first trust company I used blew up PFG-style and the owners made off with all the money, including a good chunk of mine. So I would MUCH rather be my own trustee. I gotta look into this!! Thanks for the tip!

[SatchFan]

I'm very interested in this topic. I have subscribed. I'm not very knowledgeable about this, but would like to learn. Not sure what company I would start. A signal service doesn't interest me at the moment though. I'd have to ponder this one.....

Keep up the informative posts peeps!

SatchFan

[macman]

This is for USA based readers ONLY

Rest of the world .... move along please :arrow:

[Fx93]

I've ditched the signal idea, I'd rather just have a forex trading business trading only my accounts. There may be a problem with this, since the profits may be listed under capital gains and so not "earned income" and able to be contributed to my Roth 401K, well as far as sole proprietorships's go anyway, which is explained here:

http://www.traderslog.com/business/

"Sole proprietors also are at a disadvantage come tax time. Because trading income is not considered self-employment income, you are not allowed to make tax-advantaged retirement contributions with it."

It appears that by forming a legal entity and choosing the mark-to-market accounting method as well as traders tax status that profits will then become earned income. I will need to research this further, but sole proprietorships are definitely out.

I also found that one can form a business like an LLC in another state than one's own, and the two best are Nevada and Wyoming.

http://www.myllc.com/which-state-to-form-llc.aspx

[Fx93]

Ok, armed with the LLC for Dummies book I can report a few more things:

The LLC should be formed in the state you do business since you are doing business by trading in it, and should be a LLC partnership started by two or more people. The Dummies book author says it is ok to give someone a 2% interest in the business so that it's a partnership, but another person's view is: "We strongly prefer that all members hold more than a mere token percentage of ownership in the multi-member LLC. Owning relatively too small of a percentage interest in the LLC could be looked upon as peppercorn co-memberships which is possibly only one step away from sham co-members in certain circumstances. Especially if the co-members have not paid for their membership interest (they received a gift of the membership, for example)."

I also found that there will likely be a yearly maintenance fee with a solo 401k plan sadly, no matter who you go with. I have copied some of these people's explanations as to why this is:

Jeff Naber’s Explanation of Why They Charge a Yearly Fee
A qualified plan (which is what a Solo 401k is) is run less by codified statutory parameters and more by parameters in the plan documents. So what your plan can and can’t do is up to your plan documents. While an IRA might have a 2 page plan document, a 401k often has 200 pages of documents.
A Solo 401k may be simple and easy to use, but the 401k plan docu-ments themselves are complex enough that anyone in their right mind will only use IRS approved documents.
On that front, there are two options. The expensive option is to setup a plan and then submit it to the IRS for its individual opinion letter which is tedious, expensive, and involves waiting for the government to process paperwork.
The instant, less expensive way is where a company like mine (Na-bers Group) designs a plan document and then registers it in a special IRS program where we get one opinion letter that covers all of the plans we create and maintain.
When a company like mine does this, we are legally required to maintain the documents (the responsibility cannot be put off on to you), and we are required to charge a fee for this. Even if we weren’t required to charge a fee, we’d have to do it anyways in order to stay in business because no company can pay expenses in providing a service without receiving income for providing that service.

This is Sunwest Trust’s explanation:
When you establish a 401(k) plan, you must take certain basic ac-tions. One of your first decisions will be to decided whether you will set up the plan yourself or to consult a professional or financial institution, such as a bank or trust company. There are three initial things that you will need to do to setup a 401(k) plan:

Adopt a written plan document
Arrange a trust fund for the plan’s assets
Develop a recordkeeping system

Because it can be expensive to adopt your own plan document and have it approved by the IRS, you may want to find a prototype plan sponsor who already has an IRS approved document. This is where Sunwest Trust comes into the picture. Sunwest Trust, Inc. is a prototype plan sponsor with an IRS approved plan document for a self-employed 401(k). We will provide you with a written plan document, which has been approved by the IRS and has a built in trust. This document must be amended from time to time as required by law and operating accord-ing to the terms of the document.

This is IRA Financial Group’s explanation:
In order to ensure the structure remains in compliance with IRS and ERISA rules and procedures, the IRA Financial Group suggests that each of its clients elect to use IRA Financial Group’s annual tax compliance services. Our low annual fee includes tax advice on the structure and the 401(k) Plan, as well as includes the delivery of new Plan documents in the case of a change in law. In addition, IRA Financial Group will work with you to coordinate the filing of any IRS information returns as well as the attainment of the annual business appraisal.

So IRA Financial suggests that we pay the yearly fee and use its annual tax compliance services. This seems to be paying them a yearly fee in case they have to do something, instead of when they actually do something! It may be that you can tell them you don't care if your plan is compliant, or "I'll pay you if you have to make changes," I'm not sure.

The 401K is still better potentially, since you can contribute 3x as much to it. It doesn't have to have a custodian, but there are still yearly fees most likely.