401k and Certificate of Deposits or Money Market Accounts

[Richard D.]

Now that interest rates are going up, is there a way to invest solo 401k fund in a Certificate of Deposits or Money Market Account? I am asking as these types of products report interest to the IRS. As I am not taking or using that interest, and it should be deferred, what is the process?

Richard D.

Contact

[Mark Nolan]

Yes, the solo 401k may be invested in CDs and/or money market accounts, with the funds continuing to grow on a tax deferred basis.

You can open a bank account for the solo 401k and then make the investment through the same bank.

When opening the bank account for the applicable solo 401k participant, make sure it is opened in the name of the solo 401k plan using the Plan’s EIN. Click here to view a solo 401k bank account guide.

The solo 401k may have multiple holding accounts (e.g., a bank account & a brokerage account) for the same source of funds (e.g., pretax funds). This is popular for solo 401k account holders seeking to invest in CDs, for example.

If the bank issues a 1099-INT to report the interest earned, this will have no tax consequences since a solo 401k plan is a tax shelter vehicle until distributions commence. The bank will issue the 1099-INT in the name of the solo 401k trust and will use the plan’s EIN for reporting purposes. You will simply need to keep the 1099-INT in your records.

Mark Nolan

Compliance Officer

Contact

1-800-489-7571 www.mysolo401k.net