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The Rocket Dollar Guide to Self-Directed Retirement Plans
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2 min read

3 Do’s and Don’ts of Self-Directed Solo 401(k) Compliance

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As the deadline to file 2018 taxes looms ever closer, it’s important we take a step back and re-examine some of the rules governing self-directed individual retirement accounts to ensure Rocket Dollar account holders are in full compliance with all Internal Revenue Service regulations.

Compliance is comprised of three important pieces:

    1. Annual reporting to the IRS
    2. Prohibited investments
    3. Prohibited parties

Let’s take a closer look at each.

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Compliance: Annual Reporting

Rocket Dollar account holders with more than $250,000 in assets in their Self-Directed Solo 401(k) retirement accounts are required to file a form 5500 with the IRS on a yearly basis.

As director of your self-directed retirement plan, you have the most insight into the true worth of the assets within your plan. Therefore, it’s best to always consult and work with your tax professional when you are required to file a form 5500 to ensure you meet all reporting requirements.

Rocket Dollar helps plan holders stay compliant by ensuring all plan documents remain up-to-date. If there are ever and rule changes or amendments issued from the IRS, we’ll promptly update your plan documents and have you re-sign them to alleviate any potential compliance issues. Rocket Dollar account holders are always provided with the newest and most relevant information at their fingertips to ensure their plans are always in compliance with the latest IRS regulations.


401(k) Compliance: Prohibited Investments

Here’s an easy way to determine the main types of investments that are prohibited by the IRS: Collectibles and consumables are off limits. If you can eat it, drink it, or drive it, it’s likely a prohibited transaction. That means you can’t invest in collectibles such as paintings, sculpture, fine rugs or classic cars, as well as consumables such as wine or fine whiskey.

The good news is that the types of investments prohibited by the IRS are pretty limited. Rocket Dollar account holders are empowered to place their retirement funds into a wide range of alternative investments outside of stocks and bonds.

401(k) Compliance: Prohibited Parties

Certain parties are disallowed from potential investments through a self-directed 401(k). The list of disqualified persons includes you and your spouse, and anyone upstream or downstream of your familial tree – parents, grandparents, children, and grandchildren are all considered disqualified persons.

For instance, while you certainly can purchase a rental property through your solo 401(k), you can’t rent it to anyone in your family since nobody in your direct lineal ascendancy can benefit from your investments.

Similarly, you can’t rent that income property to your employer or anyone who provides plan-related services, such as a fiduciary, custodian or administrator. Nor can you purchase half of a rental property through your solo 401(k) and provide the rest in cash – that’s like going into business with yourself and is a prohibited transaction.


Rest Easy With Your Self-Directed Retirement Account

If you are thinking about making investments through your Rocket Dollar self-directed retirement account but aren’t sure whether the transaction will raise red flags with the IRS and knock your plan out of compliance, we can help. Our team of experts is always ready to answer any questions you might have about your investment choices.

Successfully managing a Self-Directed retirement account requires a bit of vigilance and knowledge of IRS rules and regulations. Rocket Dollar works with account holders every step of the way to ensure their plans always stay in compliance, and we’ll answer any questions you might have as you plan and make investments from your account.hard-cover-book


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