Real Estate 401 k: Insuring Rental Property Held by a Solo 401k Plan
When investing with a Real Estate 401 k plan, plan owners may need to obtain insurance for their properties. According to Solo 401k rules, plan owners need to keep all transactions at arm’s length. As a disqualified person, the plan owner is not allowed to pay for the Solo 401k investment expenses using personal funds. He or she also cannot extend any credit to the plan.
When it comes to insurance policy for a real estate 401 k property, plan owners cannot pay for the insurance expenses. The policy also should be under the name of the Solo 401k plan.
In this Solo 401k Quick Tip video, we will discuss what plan owners need to know about insuring a Real Estate 401 k rental property:
Insuring Rental Property Held by a Real Estate 401 k Plan
The property insurance for a rental owned by your 401k should be in the name of the Solo 401k trust, which is the owner of the property. Sometimes the insurance company may insist for the insurance to be in your name as individual. As the trustee of the plan, you can obtain insurance in your name, but be sure to ask the insurance company to add the trust as other interest. Remember that insurance premiums as well as any other expenses related to the property must be paid from the Solo 401k account.
April 11, 2019 @ 10:09 am
That’s a nice list of deals. Looks like you guys are pretty busy on the investment side of CRE. Must be fun putting those kinds of deals together.
October 16, 2019 @ 7:22 am
what happens if a property burns down and the insurance company pays out? the funds ideally couldnt go into a 401k because they arent qualified funds? what happens if someone is injured and sues the 401k since they are the actual “owner” of the properties? do you foresee an issued with regulating this kind of investment if the proceeds of insurance pay out is tax free and coming from a pretax investment?
November 7, 2019 @ 1:27 pm
The funds from the insurance company can only go to the 401k since 401k is the insured party and legal owner of the property. As trustee you would then coordinate the use of the funds to restore or rebuild the property.
Yes, it is possible to get sued, that why you have to make sure to obtain adequate amount of liability insurance to protect yourself in a situation like this.
The proceeds of the insurance will be paid to the owner, 401k, all of this will take place under the “umbrella” of the 401k.