Managing Property Owned by a Qualified Plan

Can you personally manage a property that is owned by your qualified plan?

The Solo 401k by Sense Financial is an IRS-approved qualified plan. You are trustee of the plan. And as trustee, you direct the investments of the 401k.

Our clients often ask questions about investing with the plan and managing the assets of the plan. Read on for a recent question we received.

Managing investments owned by your qualified plan: yes or no?

I am planning on purchasing an investment property (a single-family residence) using my self-directed Solo 401k plan. I’d like to manage it myself.  

I will rent the property to an unrelated party. Another unrelated party will also perform any property maintenance and repair work.

But can I manage the property? Would managing the property, like collecting the rent and screening the tenants, be allowed under the qualified plan?

Avoiding prohibited transactions

The answer is going to be somewhat vague as there are different views on this issue.

Consider the following:

• It would be a prohibited transaction if you were paid for your services from the plan

Section 4975(c)(1)(C) states that there cannot be the direct or indirect furnishing of goods, services, or facilities between a Solo 401k plan and a “disqualified person.”

The 401k cannot pay you for any services you provide. You are a disqualified person with respect to the plan’s investments. You cannot receive any compensation for your services as a manager.

• Even if you were not paid, there would still be a concern that you personally provided services to your 401k. Or, that you received a form of indirect compensation by performing services that you would normally have to pay for.

• On the other hand, it can be argued that performing minimal services, such as collection of rent, does not reach the level of a prohibited transaction

Unfortunately, only the IRS/DOL can confirm if it is or isn’t a prohibited transaction. And you would only find out after the transaction is done, when it’s too late.

So it comes down to: how conservative do you wish to be? 

With its advantages and benefits, the plan is worth maintaining and preserving. You don’t want to endanger the qualification of the plan by mishandling the plan and its investments. Know the rules and stay within them.

Sense Financial provides helpful resources to manage the plan. It’s important to us that you are educated and equipped to administer your plan well. Our resources include articles on prohibited transaction guidelines. In addition to our website and educational resources, we are always ready to discuss any questions you may have.