Odds are good that if you’re considering the Self-Directed 401(k) as an investment vehicle for your retirement funds, you have at least heard the term “Checkbook Control.” You may even already have a grasp of Checkbook Control and know that you want this feature for your Solo 401(k) plan. But many investors who start researching online quickly learn that the IRS doesn’t actually mention the words “Checkbook Control.” They do, however, discuss Trustees, and the great deal of control that the Trustee has over the plan.
It’s no wonder that this language can be a source of confusion for many investors. Read on to get some clarity on this subject and learn how Trustees and Checkbook Control influence your Self-Directed 401(k).
What is Checkbook Control?
Checkbook Control is actually a term that came about from providers of 401(k)s. Essentially, it’s a marketing term of art. Rarely is there a literal checkbook involved, but it can be helpful to think of the checkbook as a metaphor for your how your plan’s assets are managed.
Checkbook Control for Self-Directed 401(k)s simply refers to the ability to invest in anything that the IRS allows, including a broad range of nontraditional investments. It’s a highly desirable feature, and likely the reason you’re considering a Self-Directed 401(k) in the first place. Essentially, Checkbook Control is the aspect of your account that allows you to break free from the shackles of custodians and traditional investments. If you want the freedom to control how your retirement assets are invested and ability to diversify these investments, then you need this feature.
But as we mentioned, the IRS does not use this terminology. If you read through the regulations on Self-Directed 401(k)s, you’ll actually see that most of the “control” of the account goes to the trustee. This brings us to the obvious question.
What is a Trustee for a 401(k)?
Uncle Sam defines the Trustee of a 401(k) as the person who has the power to manage and control the plan and its assets. This person will also make decisions about which kinds of investments your plans funds are going to. The Trustee can make or break the self-directed account, because they’re the one holding that metaphorical checkbook.
What Does This Mean For Me and My Retirement Account?
The good news is, you can easily get the Checkbook Control you want and serve as a Trustee. In fact, you can self-direct your account while serving as the trustee. Doing so has many advantages. Remember that metaphorical checkbook? By taking on the trustee’s responsibilities while also being the plan’s participant, you take total possession of the plan’s “checkbook.”
Don’t Go Retirement Planning Alone
Now don’t let all that power go to your head. It’s still always a good idea to get input from a professional CPA or attorney to ensure you aren’t making costly prohibited transactions with your account. The professionals at Royal Legal Solutions are always here to help you manage your Self-Directed 401(k) and manage the account appropriately. We can also advise you on the best type of account for your unique circumstances and guarantee its compliance with IRS reglations.