Question: I am looking for an out of state property to add to my personal 401k portfolio. If I travel there to view and select the property, can I use the retirement fund to pay for travel expenses?
The answer is no for a couple of reasons:
– Since the property belongs to your personal 401k, and you are the trustee of the plan, you should hire a third party for inspection and property management. As the trustee of the plan, you can’t be paid to provide services (inspection, repairs, etc.) to the property, and should keep a passive position if possible.
– The costs involved with viewing, selecting and purchasing the property should not be consider a plan expense but instead a personal one. Just like when you travel to a local broker to purchase stock to add to your portfolio, the related expenses, such as gas, car wear and tear, or the time your spend traveling to your broker’s office, are usually not reimbursed by the plan. Therefore, when you travel to the location of the property to meet with a Realtor or property manager, the costs involved will be considered personal expenses and should be paid by your personal funds.
As a general rule, plan holders of a Personal 401k should not benefit from the plan investment in any other way
For example, plan holders cannot use the fund to invest in a home that he or she will live in. The plan also cannot pay the plan holder or any other disqualified person to provide a service to the property. That means, for example, you cannot use the funds from your Solo 401k to purchase a house and then pay yourself to manage or to do repair works on the property. Doing so will most likely cause a prohibited transaction that can trigger a hefty penalty charge, or even disqualification of the plan.
To avoid unnecessary charges and penalties, it is recommended to read about prohibited transactions, and talk to your plan provider or a Solo 401k specialist when you are uncertain.
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