Your Ultimate Solo 401(k) is a powerful investment tool, but there are some restrictions. Avoid these five common investment mistakes to keep your retirement plans running smoothly.
- Never apply for a credit card on behalf of your Solo 401k. Credit card companies are always looking for new customers, and often mail credit card applications to newly formed entities. As such, if you receive a credit card application on behalf of your Solo 401k, never fill it out or sign it, because by doing so, you will be issuing a personal guarantee on behalf of your Solo 401k, which is a Prohibited Transaction. Additionally, do not apply for overdraft protection or for a line of credit for your account, for the same reasoning.
- Every investment made must be for the exclusive benefit of your retirement plan and not for the non-plan benefit of you or any other person. You must be diligent to avoid any direct or indirect “Prohibited Transactions.”
- Never enter into a transaction without first reviewing the Prohibited Transactions overview as well as obtaining the appropriate legal, tax, and investment advice, as Broad Financial does not provide this type of advice.
- Although you hold the checkbook to your Solo 401k, always remember that the checking account is an asset of your Solo 401k, and as such never borrow money from it without completing the appropriate loan forms (found in the Administrative Forms section of this binder). You may not lend to it either, except in very limited circumstances.
- Remember that the Solo 401k is a retirement plan for companies or individuals that have no full-employees (employees working 1,000 hours or more in any year) other than owners, partners, and their spouses. If you hire employees in the future, your plan will need to be modified. Failure to modify the plan may result in the plan becoming disqualified.