Account Types and Non-Recourse Loans
Since traditional and alternative assets can be held in a Self-Directed Solo 401(k), two different account types need to be utilized depending on the asset class.
If additional funds are needed by the plan to purchase real estate, a non-recourse loan must be used.
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Generally speaking, any bank, credit union or brokerage can be used to hold the funds in a trust checking or trust brokerage account.
But, unfortunately, and based on Nashional Self-Directed's experience, many financial institutions do not know how to properly handle this kind of account and/or do not offer non-recourse loans.
So, you will want to consider using an investment advisor who is familiar with trust brokerage accounts and/or using a bank that is familiar with Self-Directed Solo 401(k)s, checkbook control for alternative assets and can handle non-recourse loans, if you want to invest in real estate.
Keep in mind, you will need to open a separate bank and/or brokerage account(s) to hold the Roth and after-tax contributions separately from each other and from the pre-tax funds, if the intention is to make those types of contributions.
Bank and investment advisor referral information is below, if needed.
If you want to use your account funds to purchase real estate, and you don’t have enough in it to cover the full purchase price, plus related expenses over time, you will either need to get an investor, who is not a disqualified person, to go in on the deal with you as a joint venture, or you will need to use a non-recourse loan for the purchase.
Since typical loans take into account the account holder’s personal finances and collateral, they cannot be used.
Doing so would be a prohibited transaction since the account will be investing with its fiduciary, you/the account holder, thus benefiting you personally.
It would be seen as a distribution and create a tax consequence.
Non-recourse loans are the only loan type a Solo 401k can legally obtain to purchase property.
If you need help finding a bank or investment advisor familiar with these types of trust accounts, here is an option for each:
Titan Bank, information below, is an unaffiliated banking service provider that is very familiar with trust checking accounts for checkbook control of alternative assets and offers non-recourse loans. No consideration is received for referring to Titan Bank for these trust checking accounts.
Nashional Independent Investment Management, a subsidiary of Nashional Financial, is an affiliated company. It's Chief Investment Officer, Jeff Nash, CFP®, CPA, is familiar with trust brokerage accounts for traditional investments. A conflict of interest should be noted, as Jeff is the husband of Nashional Self-Directed's President & CEO. Click here for more information about Jeff and Nashional Financial.
Titan Bank specializes in deposit accounts and non-recourse loans for self-directed retirement customers. Their offerings include:
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Non-recourse loan options for deposit customers of Titan Bank.
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Titan Bank is a Texas national bank, established in 1907. It's accounts are FDIC insured. Setup your account today by calling 888-360-1300 or emailing firstname.lastname@example.org.