Checkbook 401k: What to Do in Case of Insufficient Funds
Investing in real estate and other non-traditional assets is one of the perks of having a Checkbook 401k, or a Solo 401k plan. Plan owners need to keep in mind that for all of the investments, all expenses and income need to go through the Checkbook 401k itself. For example, if you’d like to invest in a property with your 401k, you need to make sure the plan has enough fund for not only the purchase price, but also other expenses. These include closing cost, insurance, and maintenance.
If your Solo 401k does not have enough funds to cover expenses, what should you do? In this Solo 401k Quick Tip video, Sense Financial discusses a few options plan owners have in such situation:
Checkbook 401k: What to Do in Case of Insufficient Funds
Per Solo 401k rules, all expenses occurring from the Solo 401k-owned property need to be funded by the plan itself. Plan owners are not allowed to pay for these expenses using their personal funds. There are a few options if your Solo401k does not have enough funds to cover these expenses. You can transfer more funds from another retirement account, such as an IRA or old 401k. You can also get a non-recourse loan against the property in your 401k. The third option is bringing in a partner who is not a disqualified person.