What is the Role of a Trustee of an Individual 401K Plan

September 27th, 2011

One of the advantages of an Individual 401K Plan, also known as a Solo 401K Plan. is that the individual plan participant can serve as trustee of the Plan.  As trustee of the Individual 401K Plan, the individual has the ability to make investment decisions on behalf of the Individual 401K Plan.  Unlike most conventional Individual 401K Plan, with a trustee directed Individual 401K Plan, the individual plan participant, as trustee of the plan, has checkbook control over his or her retirement funds.  What this means is that making an investment is as simple as writing a check.  As trustee of the Individual 401K Plan, once you identify an investment you want to make using your 401(k) plan retirement funds, all you will need to do as trustee of the Plan is wire the funds or write a check from your 401(k) Plan funds.  The investment will be made in the name of the 401(k) Plan.

As trustee of the Individual 401K Plan, you will have signatory authority over your retirement assets to make the type of investments you want when you want.  As trustee of the Individual 401(k) Plan, you will also have a fiduciary responsibility to your plan assets.  In other words, when you make investments with your Individual 401(k) Plan, the investments must be made in the best interest of the plan and not you.  To this end, it important to familiarize oneself with the prohibited transaction rules outlined under Internal Revenue Code Section 4975.  In general, as trustee, one must be cautious to invest in any prohibited transaction or invest in any transaction that will personally benefit you either directly or indirectly.

As trustee of a trustee directed Individual 401K Plan, the trustee and not the custodian and total control and investment authority over the retirement assets in the Plan.  Unlike more conventional Individual 401(k) Plans that are offered by many of the traditional financial institutions, a trustee direct Individual 401K Plan will give you checkbook control over your retirement funds so you can make traditional (stocks, mutual funds, etc) and nontraditional investments, such as real estate, tax liens, precious metals, etc tax-free and without custodian consent.  In the case of a conventional 401(k) Plan, the individual plan participant will be required to seek the consent of the custodian before making an investment.  Additionally, with a custodian controlled Individual 401K Plan, the individual plan participant would be restricted from making non-traditional investments and would be required to making strictly financial related investments.  Accordingly, a trustee directed Individual 401K Plan will give you all the benefits of a Individual 401K Plan, such as high contributions, loan feature, Roth conversion, and much more plus have the ability to make real estate and other investments tax-free!

To learn more about the Individual 401K Plan, please contact a 401K Expert at 800-472-0646 or visit www.solo401Kexperts.com