Checkbook 401(k) Plans: How a Solo 401(k) Unlocks Control Over Alternative Investments

Most Americans associate retirement investing with mutual funds, ETFs, and stocks. But for business owners, consultants, and independent professionals, retirement planning does not have to stop at Wall Street. The Solo 401(k) has quietly become one of the most powerful tools in the financial world, not just for saving, but for controlling how retirement money is invested. When structured correctly, a Solo 401(k) can offer checkbook control, allowing the investor to buy real estate, lend money privately, invest in funds, and participate in the private economy, all within a tax-advantaged retirement plan.

Not all Solo 401(k) plans are created equal. Understanding the difference between a traditional brokerage-based Solo 401(k) and a true checkbook control plan is the key to unlocking its full potential.

What Is a Solo 401(k)?

A Solo 401(k), also known as an individual 401(k), is a retirement plan designed for self-employed individuals and business owners with no full-time employees other than themselves and a spouse. The law allows the business owner to make contributions as both the employee and the employer, resulting in significantly higher annual savings limits than any IRA.

The Solo 401(k) works like a traditional company retirement plan but without the administrative complexity. It allows the owner to build retirement savings faster and with more flexibility than typical retirement accounts.

Not All Solo 401(k) Plans Are the Same

Many people assume opening a Solo 401(k) at a brokerage firm gives them full investing freedom. Unfortunately, that is rarely the case.

Most brokerage firms design Solo 401(k) plans to function just like standard investment accounts. They limit investment choices to stocks, bonds, ETFs, and mutual funds. These platforms are built around selling financial products rather than providing true investment control.

A self-directed Solo 401(k) works differently. It is designed for control and flexibility. It allows business owners to invest in alternative assets that are often unavailable through traditional brokerage platforms. What distinguishes a self-directed Solo 401(k) is how the plan is written, administered, and supported, not just its label.

What Is Checkbook Control?

Checkbook control means the Solo 401(k) trustee, usually the business owner, has direct authority over plan funds. Instead of instructing a financial institution to execute transactions, the trustee manages investments directly from a plan bank account. Purchases, payments, and investments happen without custodian approval or delays. Properly structured checkbook control provides the same operational freedom as a personal business account while preserving retirement account tax advantages.

What Counts as an Alternative Investment?

Alternative investments are assets outside traditional stocks, bonds, and mutual funds. The IRS does not prohibit private investing inside a retirement plan. It prohibits self-dealing.

A Solo 401(k) may invest in almost anything except life insurance, collectibles, and transactions involving disqualified persons under Internal Revenue Code Section 4975. Permissible alternative investments include:

• Real estate
• Private lending
• Private equity
• Venture capital
• Hedge funds
• Precious metals
• Tax liens
• Private businesses
• Crowdfunding investments

The only rule is that the investment must benefit the plan and not the individual personally.

Why the Solo 401(k) Is So Powerful

The Solo 401(k) is considered the most powerful retirement plan available because of its combination of funding capacity, flexibility, and tax control.

One of its biggest advantages is contribution size. In 2025, the employee contribution limit is $23,500 if under age 50, $31,000 if over 50, and $34,750 for ages 60 to 63. In 2026, those limits rise to $24,500, $32,500, and $35,750 respectively. In addition to employee contributions, the business may make employer profit-sharing contributions. This allows total contributions in 2025 of up to $70,000 for those under 50, $77,500 for those over 50, and $81,250 for ages 60 to 63. In 2026, total limits increase to $72,000, $80,000, and $83,250. Few retirement plans allow investors to deploy this level of capital so efficiently.

The Solo 401(k) Loan Feature

Another feature that sets the Solo 401(k) apart is the loan option. Qualified participants may borrow up to the lesser of $50,000 or 50 percent of their account balance. There is no credit check, and the repayment goes back into the account. Interest paid on the loan is paid to the participant’s own retirement plan. When structured correctly, the loan does not create a taxable event. This flexibility provides an emergency liquidity tool that does not exist with an IRA.

Mega Backdoor Roth Strategy

The Mega Backdoor Roth is a powerful strategy for high-income earners. Participants may make after-tax contributions of up to $70,000 in 2025 or $72,000 in 2026 and convert them into Roth accounts inside the plan. The result is potentially tax-free growth on a much larger scale than a traditional Roth IRA allows. Not all Solo 401(k) plans permit this strategy, so it must be built into the plan document.

Simplified Administration

Despite its power, the Solo 401(k) is one of the simplest plans to manage. If plan assets remain under $250,000, no annual IRS filing is required. There is no discrimination testing, no required third-party administrator, and minimal annual maintenance. This makes it both flexible and efficient.

UBIT Advantage for Real Estate Investors

When IRAs borrow money to buy real estate, the IRS imposes Unrelated Business Income Tax (UBIT) on debt-financed income and gains. However, Solo 401(k) plans are exempt from this tax under IRC Section 514(c)(9). This provides a major advantage for real estate investors who wish to use leverage without triggering taxation. This exemption does not exist for IRAs, regardless of structure.

Two Types of Checkbook Control in Solo 401(k) Plans

Checkbook control can be structured in two primary ways: directly through the plan itself or through an LLC owned by the plan. Both approaches allow the business owner to control retirement funds without custodian permission or transaction delays, but they differ in how investments are executed and how liability and privacy are handled.

The first approach is a standard self-directed Solo 401(k) with direct purchasing authority. The business owner works with a specialized provider to establish a plan specifically written for alternative investments. Plan documents are customized based on business type, income structure, and retirement objectives to ensure full IRS compliance while maximizing tax advantages. Once established, the trustee opens a bank or brokerage account in the name of the Solo 401(k). All investments are then made directly from the plan.

The second approach adds a legal layer through a limited liability company (LLC). The Solo 401(k) first establishes and owns a single-member LLC. The plan funds the LLC with retirement assets. The LLC opens its own bank account, and all investments are made in the name of the LLC rather than the plan itself. The trustee serves as manager of the LLC, providing day-to-day authority while the retirement plan remains the sole owner.

Adding an LLC offers liability protection and privacy. Public records list the LLC rather than the individual or retirement account, and the LLC provides a legal boundary between retirement funds and outside risk. Both structures provide full checkbook control. The choice depends on investment type, risk exposure, and preference for privacy. Investors with multiple properties, loans, or operations in litigious industries often prefer the LLC structure, while those with limited investments may opt for direct ownership.

In both approaches, the process begins the same way. The investor works with a self-directed Solo 401(k) provider that understands alternative assets and tax law. The plan must be properly designed, documented, and implemented to allow full investment flexibility and Roth conversion strategies. Once implemented, the trustee opens the appropriate financial accounts and begins deploying retirement funds directly through the plan or through the LLC.

Why IRA Financial

IRA Financial is the industry leader in self-directed retirement planning. Founded by tax attorney Adam Bergman, the firm has helped tens of thousands of Americans take ownership of their retirement strategies. IRA Financial does not sell investments; it engineers retirement plans. The company focuses exclusively on checkbook control structures, compliance design, and tax efficiency. Services include plan documents, Roth strategies, compliance support, and transaction guidance, all handled in-house.

Conclusion

A Solo 401(k) is not simply a retirement account. It is a financial operating system. When paired with checkbook control, it becomes a platform for building long-term wealth beyond public markets. It offers savings power, flexibility, control, and tax advantages unmatched by any other retirement plan.

If you want real freedom to decide how your retirement money is invested, a checkbook Solo 401(k) provides it. With the right provider, it can change the way you think about retirement forever.