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An Important McNulty Clarification (Checkbook Control Series - Part 4)

            This series of emails on the recent Tax Court decision involving the McNultys and their IRA-owned LLC, of which they were the respective managers, has resulted in several people emailing me with questions about their solo 401(k)s.  I want to clarify a couple of things.

            The McNulty case applies to IRA-owned LLCs.  It does not apply to solo 401(k)s.  A solo 401(k) is a retirement plan adopted by a self-employed individual or an individual who owns an entity being taxed as a corporation.  That individual is required to be the trustee of their 401(k).  This is completely different from my warnings about being the trustee of your IRA-owned trust.  There is a significant distinction between the two.

            For those of you who have solo 401(k)s wherein you handle the checkbook, this McNulty case is not bad information.  It is instructive, however, to make sure you are being very diligent and accurate regarding all the investments you make with your solo 401(k).  You must keep track of the amount of contributions that go into any Roth component vs. a traditional component, the amount of the employer match going into the traditional component, and the investment results of the Roth and traditional funds together.

            I hope this provides clarification for those with solo 401(k)s who are the trustees of the same.

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