Retirement Solo 401k Plan โ€“ Most Common Mistakes and Scenarios

Retirement Solo 401k Plan

Retirement Solo 401k Plan

The Retirement Solo 401k plan could offer viable solutions to your financial concerns especially in quality investment. The retirement plan is considered a great option in financing your business ventures based on the allowed transactions of the single participant 401k rules. In order to maximize the perks of the Solo 401k plan, you need to know some of the common mistakes and prohibited transactions to avoid.

What are Prohibited Transactions?

According to IRS Section 4975, prohibited transactions are those that are not allowed when using the Self-directed 401 k retirement plan for investment. Prohibited transactions are generally divided into three categories:

  • Self-Dealing
  • Conflict of Interest
  • Direct

What and Who are Disqualified Persons?

As defined in the Internal Revenue Code Section 4975 (e)(2), disqualified persons include the plan participant and his/her lineal descendants and ancestors. The entities in which the plan owner holds a controlling or management position are likewise under this category. When a disqualified person commits a prohibited transaction, sanctions and penalties are applied according to the IRS rules.

Common Mistakes against the Retirement Solo 401k Plan

Here are the three categories of Prohibited Transactions and sample scenarios for comprehensive understanding:


When the disqualified person uses the income or assets of the Individual k plan to further his/her own interest and account, this is considered prohibited


  • A transaction is prohibited if a real estate agent uses funds from his Solo 401 k retirement plan in order to purchase a property and receive commission for the sales.
Conflict of Interest

When the disqualified person receives favor or consideration from another person or entity for a transaction connected with the income or asset of the Retirement Solo 401k plan, the transaction is prohibited.


  • A prohibited transaction takes place under this category if for instance the account owner uses the money she acquired from the Single Participant 401k plan and loans the money to the business she manages, controls or partly owns.

When the disqualified person directly sells, trades, transfers or loans funds from the Individual 401 k plan, the transaction is prohibited.


  • A transaction is prohibited if the plan owner uses the Qualified 401k plan to guarantee a mortgage loan and finance a residential property investment.

Knowing the Retirement Solo 401k plan prohibited transactions is a basic step all account owners must take. Other fundamentals such as using the Individual 401 k calculator could also help you boost your retirement money.

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