Can the property owned by the Qualified Plan be managed by the account holder (or trustee of the plan)?
Question: I am planning purchased investment property (single family residence) using my self-directed Individual 401k plan and would like to manage it himself. The property will be rented to rented to unrelated party, any maintenance and repair work the property needs will also be done by unrelated party to perform any work or repairs. Would managing property (collecting the rent and screening the tenants) be allowed under the qualified plan?
Answer: The answer is going to be vague as there are no clear cut guidelines when dealing with prohibited transactions. I have seen different views on this issue. Certainly if the individual is paid for his services this is probably a prohibited transaction. Even if he is not paid — there is a concern that the individual is receiving indirect compensation because he is performing services that would otherwise have to be paid for. On the other hand, it can be argued if he is just performing minimal services — collection of rent, etc. — this should not raise to the level of a prohibited transaction. Unfortunately, you will not know this until the IRS/DOL walk in the door and try to find a problem. It depends on how conservative you wish to be but if you decide to manage the property — you should not receive any compensation for your services as a manager.