Solo 401(k) Bank Account Structure – Tips & Tricks
A self-directed Solo 401(k) provides a great amount of flexibility when it comes to investing your retirement savings. As part of designing your plan to best suit your investing goals, it pays to give consideration to the structuring of financial accounts within your plan.
How you configure you plan financial account structure will depend on several factors such as how many participant accounts you have and whether you wish to have brokerage assets in your plan.
We wanted to take some time to discuss some options in this regard and provide some helpful tips for creating an optimal design.
Plan Participant Accounts
As an employee/saver in your plan, you are a participant in the plan. If your spouse is also employed and compensated by the business that sponsors the plan, they can also be a participant.
A participant account is a segregated value tracked at the level of participant and tax treatment. As a participant, you may have both tax-deferred and Roth participant accounts, for example. Similarly, your plan could hold a tax-deferred account for you and a separate tax-deferred account for your spouse.
As plan administrator, it is your responsibility to know the distinct value of each participant account within the plan at any given point in time.
Any banking structure you need to create must address this record keeping need.
Establishing Separate Financial Accounts per Participant Account
We recommend that you have separate bank or brokerage accounts for each plan participant account. This structure best facilitates your reporting needs.
As you make plan contributions, take participant loans, or take distributions from your plan, these must be recorded at the individual participant account level.
You can take a participant loan or issue taxable distributions from multiple participant accounts in your own name but must clearly illustrate the source of funds for such transactions to ensure accurate reporting of value.
Investing with Multiple Accounts
When you invest with the Solo 401(k) the outside world only sees “the plan” as a single unit. When the plan purchases real estate, for example, the title transaction reflects the plan on title, not the underlying participant account or accounts that are being used.
On the back end, however, you need to know which participant account(s) are funding the transaction and accurately track over time the respective ownership interest each account has.
Once you designate the equity split of a particular investment, all future income and expenses associated with that investment need to retain that split. You cannot change participation over time or move value from one account to another.
Designating Allocation when Making an Investment
When making an investment, you can assume pro-rata ownership based on what each account holds at the time or you can make a specific designation of which funds are being used. Either way, it is important that you keep a record of how you choose to allocate funds towards the investment.
An example with a plan where John & Marie each have funds within their plan is shown below. They plan to make a new investment totaling $100,000 in value.
The Advantage of “Project Accounts”
Using a dedicated bank account for a specific investment transaction can be beneficial when there are multiple participant accounts in a plan. The reason is that you do not need to track the allocation of expenses and income with every single transaction.
Let’s see how this works with the above example and the specific allocation case. If you setup a separate bank account for that deal and initially capitalized it with $50K each from the two accounts used, you have baked-in the 50/50 split. You then use that bank account for all expense and income transactions over the life of that investment. If over time the investment produces some income you wish to invest elsewhere you send it back to the individual participant accounts in the same 50/50 ratio. The project account is always 50/50 in this example, and therefor easy to administer and track.
With one investment, that strategy does not add a lot of value. You could just as easily use a spreadsheet to track the project. You could pay expenses and receive income via one of the two participant accounts and then periodically reconcile by moving money between accounts on the back end.
But what if you make another investment, using $100K from the Marie’s account and $25K from John’s traditional account? Or what if after making the first investment on the pro-rata basis, you then make new contributions or rollover funds into the plan that skew the percentage of the plan total represented by each account?
In these cases, the next investment will not be at the same ratio as the first, regardless of how you allocated funds for that first investment
A separate “project account” for the next deal then makes your life as plan administrator simple. Project 1 is always 50/50 and managed through its account. Project 2 might be 80/20 between two different accounts and would be managed through its separate bank account.
Incorporating Brokerage Trading Accounts
In situations where you may use several project accounts, it might be most effective to house the primary participant accounts with a brokerage and the project accounts with a bank.
That way, you get the advantage of putting non-invested capital and/or the earnings spun off by your primary plan investments to work in the stock market, but get the more sophisticated cash handling features of a true bank for the “project” investments.
When working with a brokerage in this fashion, you will establish separate accounts for each participant account, but all under the name of the plan itself.
It usually makes sense for these accounts to be “trustee directed”, as most Solo 401(k) plans house funds belonging to spouses. Either partner can then administer the accounts.
If you had a scenario where unrelated business partners hold a plan for their business, having “participant directed” accounts might make more sense. That way, each individual could only manage their own account.
Working with the Right Bank or Brokerage
While most any bank or brokerage can hold an account for your Solo 401(k), most will not really be at all knowledgeable about the plan. As a result, you can get a lot of questions or push-back when you start designing a plan banking structure that involves multiple accounts.
Working with a Solo 401(k) friendly bank that is specifically familiar with the Solo 401(k) format and has staff trained on this topic can be a big advantage. They can help you navigate account setup more easily and you will receive better support over the long term.
Most brokerages are easy to work with. They have been servicing custom 401(k) plans for decades. As such, they usually have special account types and dedicated support teams that are familiar with the 401(k) structure.
Adjust as Needed
One of the great things about the Solo 401(k) is that you can tune your plan configuration to your current needs. As you grow your plan and make a wider range of investments, you can alter your banking configuration as needed. You can easily add, remove, or re-purpose project accounts over time. So long as your banking structure facilitates your need to accurately track the value of each participant account in your plan, you are A-OK.
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Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
