Do You Have a Solo 401(K)? Learn about the Prohibited Investment Items

Those who plan their retirement at the right age or early on in their life reap huge benefits. Most financially savvy individuals know that a 401(k) or an IRA account can help them create wealth for their golden years. After all, they allow you to save and grow your money through investment opportunities in mutual funds, bonds, stocks, and others. And if you are self-employed, you have a solo 401(k) to taste all types of tax and investment benefits, provided you obey the IRS rules and regulations. Otherwise, penalties and fines can wipe out or reduce your profits.

The Internal Revenue Service (IRS) provides a list of restricted items that you cannot use with an individual 401(k). This list includes collectibles, life insurance policies, and real estate. In this article, let us explore the prohibited investment items in detail. Collectibles are personal assets such as artwork, stamp collections, and antiques.

Since they are not liquid assets, you cannot use them to fund your solo 401(k). Similarly, life insurance policies cannot be used as a part of the plan. Furthermore, real estate investments like raw land and vacation properties are not allowed either. In addition to these restricted items, certain types of investments are also prohibited by the IRS. These include investments in S corporations, Limited Liability Companies, and trust accounts. The only exception to this rule is when you have an interest-bearing savings account at a financial institution.

Have you set up a Solo 401(k) plan? If not, visit Before this, let’s delve into a critical aspect that makes this retirement plan more appealing – investments.

Investment Options with a Solo 401(K)


A self-directed 401(k) plan like this expands your investment horizon by allowing you to put your funds into private equity, precious metals, real estate, and more. The limitless investment opportunities are more than enough to maximize your income. So, you want to avoid wandering into unsafe zones even by mistake. To ensure you avoid them, here is a brief account of prohibited items for Solo 401(k) investors.

Physical Assets or Collectibles

Since the IRS explains what you cannot try and says little about what you can do, your scope of investing money in different assets remains reasonably comprehensive. And that’s another reason to be careful about their rules. According to the norm, you cannot buy physical assets like stamps, rugs, antiques, gems, etc. Heritage articles, musical instruments, and alcohol-based drinks are also not permissible. If you use solo 401(k) funds for these collectibles, you will be subject to paying tax on the product’s current MRP. You may also have to pay fines and penalties due to early distributions.

However, it is interesting that some coin investments can be an exception. Because solo 401(k) allows precious metal purchases, you can invest in billions like palladium, platinum, silver, and gold with a minimum of 99.5% purity. These items fall outside the purview of collectible regulations.

Transactions with Certain Persons


Any transaction involving or concerning direct or indirect beneficiary of your solo 401(k) plan will belong to the prohibited transaction category. The IRS defines disqualified persons as lineal descendants, ancestors, and people or bodies associated with your retirement plan. While parents and grandparents come under ancestors, lineal descendants include spouses, kids, grandchildren, and others. An example of connected property can be something you or your family own. It can be real estate, a business, or so. Like collectibles, this category also allows some exceptions. For instance, you can transact with siblings, cousins, nephews, nieces, uncles, aunts, etc. Your spouse’s indirect relatives also come under exceptions. Due to this, you can legally carry out a transaction with them.

Prohibited Investments

The IRS also has a list of investment items that you cannot buy using your in The last thing to consider when investing with a Solo 401(k) is the prohibited investments outlined by the IRS. This includes all forms of collectibles, such as artwork, stamp collections, and antiques. Life insurance policies and real estate investments such as raw land and vacation properties are also not allowed. Any transactions with certain persons, such as direct or indirect beneficiaries of your 401(k) plan, are prohibited by the IRS.

Additionally, investments in S corporations, Limited Liability Companies and trust accounts are prohibited, with the exception of an interest-bearing savings account at a financial institution. When it comes to investing with a solo 401(k), the more knowledge you have, the better decisions you can make. Being aware of what investments are prohibited can help you ensure that your retirement funds remain safe and secure while earning maximum returns. Carefully review regulations to plan your investment strategy in the best possible way and get on the path to a secure financial future.

The best thing about solo 401(k) is the ease of setting up an account and making investments. Still, some rules and regulations require a thorough examination to avoid costly mistakes with your wealth. Before doing anything, it’s better to study that area well. You can also consult your financial advisor for clarity.



Solo 401(k) is an excellent retirement planning tool for self-employed individuals. The account has several advantages such as high contribution limits, tax deferral benefits, and a wide range of investment options. However, it is important to be aware of certain rules and regulations to make the most out of this plan.

Be sure to study prohibited transactions, investments, and other areas to make informed decisions with your wealth. With proper planning and by following the rules, you can secure a better financial future with Solo 401(k).

In conclusion, Solo 401(k) is an excellent retirement planning tool that offers a wealth of benefits to self-employed individuals. While there are certain prohibited transactions and investments to be aware of, with proper planning and a thorough understanding of the rules, this retirement plan can provide you with greater control over your future financial security. With Solo 401(k), you can felt more confident knowing that your hard-earned money is protected and will help ensure a secure future for yourself and your family.  ​