Opening a bank account for a Checkbook Control Solo 401(k) Plan or QRP should be straightforward. However, being that many bankers are unfamiliar with Checkbook Control Solo 401K Plans and Checkbook Control IRAs, opening bank accounts for these tax-sheltered retirement plans can seem complicated.
In this post we’ll provide all the info you and your banker need to set up accounts for your Self-Directed Solo 401K Trust.
Is the bank acting as a retirement plan custodian, fiduciary, or trustee?
No, the bank at which the Solo 401K bank account is opened is NOT a retirement plan trustee, custodian, or fiduciary. From the bank’s perspective, it is simply a bank account. You are not opening a 401k account – or any other type of retirement account – with the bank. You have your own Solo 401k Plan Documents and your plan was established when you signed the plan docs. All you need is bank account through which to hold plan assets and process plan transactions, as Trustee.
What type of bank account is required for a Solo 401k? Trust Account? Business? Checking? Savings?
Technically, 401k Plan assets are held in-trust for plan participants and beneficiaries. As the IRS words it: “401(k) plans are funded through a trust established to hold and invest the plan’s assets.” A 401K Trust is NOT an irrevocable trust because 401k Plans can be modified. Therefore, these are revocable trusts.
Does that mean that a Solo 401k requires a Trust Bank Account?
Ideally, your Solo 401k assets will be held in a Business Checking Account titled as a Trust. The trustee(s) will be those that are listed in the Checkbook 401(k) Adoption Agreement.
How do I properly title Solo 401k bank accounts?
Solo 401k Plan bank accounts should be titled in the name of the plan, as named in the Solo Checkbook 401k Adoption Agreement, and list you as trustee –assuming you are the trustee. In most Solo 401K Plans, the plan participant, administrator, and trustee are the same individual. For example, the bank account can be titled: Sample Company 401K Plan FBO of John Doe, John Doe, Trustee.
Whose EIN should the Solo 401k bank account use?
The Solo 401k bank account should use a specially obtained 401k Plan Trust EIN (Employer Identification Number) as its tax ID. It should NOT use your Social Security Number (SSN) or business EIN or TIN (Taxpayer Identification Number).
Who gets signature authority over a Solo 401k bank account?
The Solo 401K Plan trustee or trustees can have signature authority. The Solo 401k Plan trustee(s) will be designated in the plan documents and is usually the owner of the business that is the plan sponsor. The business owner will also be the administrator and participant.
How many bank accounts are required for the Solo 401k Plan?
Separate accounts must be opened for Solo 401k Roth contributions, which must be held separately from non-Roth funds. We recommend opening separate accounts for each type of funds the plan has – pre-tax, after-tax, and Roth. This will simplify tracking and record-keeping.
We strongly recommend separate bank accounts to track the contributions and funds of each Solo 401k plan participant. So, if your spouse or business partner is participating in the plan, you will have separate bank accounts for their funds.
The upshot of all this is that you may have multiple bank accounts for your plan. Those accounts may be titled, “Sample Company 401K Plan Roth Contributions FBO Jane Doe, John Doe, Trustee” to distinguish among account types.
What are bank account opening instructions that are unique to Solo 401(k)s?
- Do not accept any credit card offers. Doing so may be a prohibited transaction. Debit cards are OK – just be careful to use them for Solo 401k expenses, only.
- We recommend not allowing overdrafts (no “overdraft protection”). To avoid prohibited transactions, we want to avoid any scenario in which the bank is extending credit based on your creditworthiness.
- We strongly recommend that you do NOT deposit any personal funds into the account to avoid anything that may be construed as a prohibited transaction or improper contribution. Funding for the account should come from your properly calculated Solo 401k contributions or transfers/rollovers from other retirement plans.
Which documents are required for opening the Solo 401k bank account?
The key documents are (a) your signed Solo 401k Plan Adoption Agreement and (b) the IRS EIN confirmation of the 401k Plan EIN.
However, it may be helpful to take along additional documentation that will help the banker understand what you are trying to do. This may include the Basic Plan Document, the Summary Plan Description (SPD), and the plan’s IRS Determination Letter. If the banker requires clarification of what you are trying to achieve, these additional docs can be presented.
Note, however, that it is possible that providing more documents than is necessary can complicate a process that should be straightforward – opening a business checking account for a trust for which you are the trustee.
How do I fund my Checkbook 401k bank account with rollovers from IRAs and other 401(k) Plans?
Rollovers to your Solo 401k Checkbook bank account are trustee-to-trustee rollovers that are exempt from backup withholding.
You will have to contact the custodian that’s currently holding your retirement account funds to initiate the rollover process and complete the necessary paperwork. Be certain to request that funds not be sent to you personally, but rather to your established Solo K bank account and emphasize that it will be a non-taxable rollover, from trustee-to-trustee. If a check will be sent, it should be made out to your Solo 401k Plan FBO John Doe, NOT to you personally and NOT in the name of the bank at which you opened a Solo 401k bank account.
Remember: Roth IRAs may NOT be rolled-over to a Solo 401K Plan. After-tax funds in a Traditional IRA should not be rolled over to a 401k plan.
What are some additional factors to consider when opening a Solo 401k Checkbook bank account?
Following are some questions you may want to discuss with your banker when setting up a Solo 401(k) checking account:
- The level of activity in the account will depend on the Solo 401k investment strategy I pursue. Is there a dormant fee?
- I’ll be engaging in Solo 401k real estate investing, requiring wire transfers. What are your wire fees? Do I need to be present in-person at the branch to initiate a wire?
- The initial bank account balance will be high upon deposit of a large rollover check, but will drop as I pursue Solo 401(k) investments. What are the minimum balance requirements for the account, if any?
- Business debit cards – allowed for Solo 401k accounts (unlike credit cards, which are NOT allowed) – do not have the same federal fraud protections as consumer debit cards. What is the bank’s refund policy for business debit card fraud?