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Why do I need an EIN For a Solo 401k if I have a tax ID for my business?
Why do I need an EIN For a Solo 401k if I have a tax ID for my business?

Wondering why the Nabers Group team obtains a new EIN just for your 401k trust? It's all about tax-deferred or tax-free growth.

Updated over a week ago

When you set up your business, chances are high you obtained an EIN (Employer Identification Number) for your entity. If you have an LLC, partnership, corporation, or even a sole proprietorship - you probably have an EIN.

So, you might be wondering why you needed a new EIN just for your Solo 401k Trust.

EINs and Tax ID numbers are similar to “barcodes” on different products at the grocery store.

Just like each barcode is unique to a specific product, an EIN is unique to a specific person or entity. Your social security number (SSN) is similar to a version of an EIN for an individual, instead of an entity.

EINs tell the government about the specific entity, and its taxation status (e.g. LLC vs corporation vs Trust vs Non-profit vs Employer 401k).

If you used your business EIN to open bank accounts for the 401k trust, the government wouldn’t have any way of knowing which funds were taxable (belonging to your business) and which were tax-deferred (belonging to your Solo 401k).

The Nabers Group team obtains a new EIN for your Solo 401k specifically coded in the IRS system as an “employer plan”. Then, anytime the Solo 401k EIN is used, the IRS knows to treat funds associated with that tax ID Number (like money in a bank or crypto exchange account for the 401k trust) as tax-deferred or tax-free.

Similarly, if you bought a piece of real estate you’d title the property in the name of the 401k trust and use the 401k trust tax ID number/EIN. Then, when you receive rental income or later sell the property, the IRS knows that income and gains are tax-deferred because that property was “connected” to your 401k trust EIN.

If you restated your plan to Nabers Group from a “brokerage solo 401k” (like with Schwab or Fidelity), you might have noticed that while you had a Solo 401k - you didn't have your own EIN for your Solo 401k funds. Brokerage Solo 401k plans don't offer you the ability to have your own Solo 401k EIN because someone else (typically the custodian) is keeping track of the funds and plan records. They are responsible for telling the IRS which money is tax-deferred. This often results in more limited investment options since the custodian bears the responsibility of all reporting to the IRS.

Because the Nabers Group Solo 401k is fully checkbook controlled, you’re allowed to have bank accounts, brokerage accounts, and crypto exchange accounts specifically for your 401k trust. Using the 401k trust tax ID number continues to tell the government to let your funds grow tax-deferred or tax-free!

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