What to Know Before Purchasing Cryptocurrencies with Retirement Funds

By Jordan Sheppherd

Life Settlements in a Retirement Account? Think Again.

Many of our clients love the control and flexibility a Solo 401(k) brings, and though they may be interested in non-traditional investments such as real estate, private equity, precious metals, and crypto currencies, they may also want to hold more traditional assets such as stocks and mutual funds. Many of us real estate investors also know that downtime between deals can eat into your returns, where cash is just sitting there, waiting for somewhere to go.

A Solo 401(k) can certainly open a brokerage account, and can engage in just about any type of trading you can imagine. Everything from the holding of plain old stocks and mutual funds, to options trading, to trading on margin, all of it can be done in a brokerage account.

The three most popular brokerage firms I see clients using for their Solo 401(k) plans (in no particular order) are Fidelity, Charles Schwab, and TD Ameritrade. Other firms like Scottrade, E*Trade, Interactive Brokers, and Merrill Lynch also offer brokerage accounts to Solo 401(k)s.

One important thing to keep in mind when opening a brokerage account for a Solo 401(k) that we’ve set up, is that whichever brokerage firm you choose, they are not the Custodian/Trustee of your 401(k) plan – you are. You’re not opening a new 401(k) plan with Fidelity; you’re not signing over control of your plan to Charles Schwab when you open an account. For these types of Solo 401(k) plans – set up the way we set them up – Fidelity or whomever it might be is simply a brokerage firm offering brokerage services to an existing Trust that happens to be a 401(k). This Trust has already been set up and established, has already secured an EIN and opened bank accounts, and this Trust already has a Trustee or Trustees.

The process of opening the brokerage account is as simple as completing a Trust application (Fidelity & Schwab both have specific applications for a Solo 401k), and including a few pages of your plan documents, typically the Adoption Agreement. The account is opened in the 401(k)’s name, and if you have more than one participant in your 401(k) plan, you can hold those monies or assets in separate sub-accounts within the one brokerage account.

If you’re already a client, you might be asking yourself “But I have a checking account for the 401(k) plan, can I also have a brokerage account? How do I move money back and forth?” First, there is no issue having both a checking account and a brokerage account for the 401(k). There’s still just one 401(k), but the plan has opened two separate accounts and is just holding funds or assets in two places, for different reasons. Moving funds back and forth between say a checking account and a brokerage account is done easily, and that movement of funds is not considered a transfer or rollover. Think of it like the 401(k) plan moving money from its left pocket to its right pocket. So long as you have a record of what funds moved where and for what reason, you can bounce funds back and forth however you want to.

Here are some links to applications for the top three firms I’ve seen clients choose:

Fidelity calls their application an Investment-Only Non-Prototype Retirement Account Application

Charles Schwab calls their application a Company Retirement Account Master Account Application

TD Ameritrade keeps it simple by just using a Trust Application

Scottrade, E*Trade, & Interactive Brokers all use Trust applications, so far as I know, so if you just do a search online for their Trust app, you should find it without any problems.


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