Trade Stocks in Your Solo 401k – Part I

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Take control of your retirement funds by learning how to trade stocks in your Solo 401k.  If you have a Solo 401k for investing in real estate and other alternative investments, you can have a traditional stock brokerage account in the Solo 401k as well. A brokerage account inside your Solo 401k enables you to move money between alternative and traditional investments.

When you have a Solo 401k, it really does mean you have total control. Just like traditional 401k accounts, a Solo 401k account can invest in stocks, bonds, and mutual funds (along with derivatives such as options). It’s as easy as establishing a stock brokerage account in the name of your Solo 401k trust.

Getting It Right With Your Solo 401k Brokerage Sub-account

Through Nabers Group, you can open a Solo 401k Brokerage Sub-account with almost any major brokerage firm. As an example, we use a Schwab brokerage account to keep the terminology simple. When you explore sub-accounts for different brokerages, you’ll find variations in the terminology that each uses. For instance, Schwab calls these types of accounts a “Company Retirement Plan.” This is their account specifically designed to work with your Solo 401k.

Something very important to remember is that you are NOT opening an Schwab 401k account. Rather, your Solo 401k is opening an investment-only account with Schwab. There are a specific process and application for this account.

Depending on the brokerage firm you select, the platform may have its own fees and rules associated with trading. The Nabers Group Solo 401k is compatible with any brokerage platform. However, it’s wise to learn about fees and rules before opening an account or investing.

Make Stock Trades with a Solo 401k

Once you open a stock brokerage account through your Solo 401k, you can begin making trades. You can also contribute new funds to your Solo 401k for the purpose of trading stocks (within the contribution limits). Additionally, you can rollover funds from another retirement account. Immediately after funding the account, you can invest in stocks, bonds, mutual funds, CDs, etc. Of course, you are still free to make any alternative investments through your Solo 401k such as real estate, tax liens, bitcoins, private businesses, and almost anything else.

Importantly, by purchasing stocks or securities with Solo 401k funds, all income and gains, including dividends, flow back to the Solo 401k account tax-deferred. With a Roth Solo 401k, all gains are tax-free.

Solo 401k Brokerage Account Tips

Alongside alternative investments, many Solo 401k plan owners also invest in stocks and derivatives. For instance, there can be time between alternative investments when cash is sitting in your Solo 401k that you could invest in highly liquid stock assets. Or maybe you want to invest idle reserve funds (common with real estate investing) where there is a potential for a higher rate of return compared to a savings account. Although stock market investing may not be your preferred assets class, there are times when traditional equities investing make sense while you are waiting to invest your money elsewhere.

Because, you are not opening a new 401k account with the stock brokerage (such as Fidelity or Schwab), the brokerage is NOT the custodian/trustee of your 401k plan – you are. The only thing the brokerage is doing is providing brokerage services to your existing Solo 401k – you can still control all of your stock market transactions.

Questions and Considerations Before Trading Stocks

  • Ask detailed questions and take notes from a representative of each brokerage that you are considering. Each firm has a slightly different process for opening an account and the rules that govern it.
  • Read the fine print in the applications and related materials.
  • If you are considering a third-party financial advisor, take extra precautions when performing your due diligence. Make sure the individual is fully knowledgeable in the types of market trades that you are interested in and that his/her securities license is in good standing.
  • If you are considering alternative investment strategies within the stock markets, be extra cautious of promoters promising extraordinarily high returns – have your fraud alert on its high setting.
  • Fully understand any methods for leveraging your investment money. Leverage is allowed but you need to consider the possible tax consequences of Unrelated Business Taxable Income (UBTI). Remember, your Solo 401k is making the investments. Therefore, you cannot personally guarantee any leverage or loan obligations.
  • Pay extra attention to be sure that all income, gains, or losses from the stock market investments are allocated back to your Solo 401k.

Your Solo 401k Account Has All of the Options

There are few limitations with a brokerage account opened in the name of your Solo 401k. You can invest in any openly traded stocks, mutual funds, options trading, and other derivatives.

One advantage in having a brokerage account inside of your Solo 401k is the ease of transferring money. Once funds are inside your 401k, you never have to be concerned about fund rollovers, sending checks between accounts, or any similar hassles. Although the brokerage account is a separate account within your Solo 401k, all of your funds are expediently in the same place. It’s just a separate account for holding funds that have a different purpose. Moving funds between internal accounts are not considered a transfer or rollover, which means no troublesome IRS reporting is required. As the Solo 401k plan administrator, always keep an internal accounting of fund movements. However, as plan admin you can also easily move funds back and forth as you see fit.

Trade Stocks in a Solo 401k Plan

Now you have an understanding of how convenient it is holding a stock brokerage account inside of your Solo 401k. With that, you’re going to want to know about strategies available inside the brokerage account. Coming soon is Part 2 of this blog that will cover more in-depth topics including:

  • How do I trade options?
  • Can I buy futures in my retirement plan?
  • How do I short stocks in a Solo 401k?
  • Can you do uncovered calls in a retirement plan?
  • Can I buy LEAPS in a retirement plan?

Perhaps you are currently most comfortable investing in stocks and bonds. In the future it may be worth expanding your vision to learn about alternative investments like real estate or bitcoin. Or perhaps you’re already highly experienced with alternative investments. For diversification, you’d like to cast an even wider net for your portfolio that includes a brokerage account. A Solo 401k is the one account that puts you in full control of when, where, and how you want to invest.

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