Why Is An Account Summary Statement Of Your Solo 401(k) Necessary?

With a self-directed Solo 401(k) plan, you are in direct control of it. Right from planning it out, you are responsible for managing the Solo 401(k) as the trustee. In addition to being the trustee, you are the plan administrator and the investment manager. You must call all the shots and make investments, as you deem right. You get to wear multiple hats in one go.  

To know more about how to set up the account and manage your Solo 401(k), you can always refer to solo401k.com. You will get all the required information there. 

When you hire an expert to manage your investments, you expect them to provide you with an annual statement. This statement will highlight how your investment is performing. You need to prepare the annual statement to keep track of how well the investment is working out for you. So, when you manage the Solo 401(k) on your own, why should anything change? 

Why Do You Need a Statement?

You may wonder if you already know why you invested in Solo 401, so why do you need the statement? What purpose could it serve? While you are not wrong, there are multiple reasons why you need this annual statement. Today, we are going to discuss those reasons for better understanding.

  1. Valuation of your Solo 401(k): You must value the plan yearly. If your plan is more than $250,000, you must file for the 5000-EZ returns. In case, you fail to do so, you will have to pay a fine for underestimating your plan value. The fines are too high; you better evaluate your plan. 
  1. Minimum Distributions: If you are more than 72 years old, you will have to take a certain amount from your plan as distribution. The amount for the distribution depends on the yearend value of your Solo 401(k) plan. To get the desired results, an accurate valuation is a must. There is no alternative to this.
  1. Tracking the performance: Since you are your own investment manager, you need to track how well your investment is performing. You should know whether you have selected suitable investments or not. You need to keep track to avoid getting confused. You can end up mismanaging your assets as well. To manage your finances, you should have a proper plan of action. 
  1. Applying for loans becomes easy: The lender will ask you to furnish a statement summary if you plan to apply for a loan. They need to know that you will be able to repay the loan. The statement summary is more valuable than you can imagine it to be.
  1. Estate Planning: In the case of a self-directed Solo 401(k) plan, there is no one managing your finances. It is you who is looking after everything. If anything is to happen to you, who will inform the beneficiaries? How will they know who is receiving what? With the account summary, you can put this confusion to rest. 

Are you ready to chalk out the account summary of your Solo 401(k) plan? The pointers mentioned above are good enough to get you started.