Question: I would like to establish owner-only 401(k) with the intention of purchasing real estate using my retirement account funds. I want to partner on the deal with unrelated party (my friend), who will qualify for a loan. The unrelated party will be using his own credit to qualify for a loan and my solo 401k plan will be cash-partner.
So here is my question: Would this scenario be allowable with the Owner-only self directed solo 401k loan rules? Again, the plan funds will be used for a down-payment and another non-related person will obtain conventional loan.
Answer: The issue would be whether the transaction would result in Unrelated Business Taxable Income (UBTI) to the plan. UBTI can arise where a plan invests in debt-financed property. However, Code §514(c)(9) permits 401(k) plans to use non-recourse leverage when purchasing real estate with plan assets and not be subject to the UBTI. To qualify for this special rule, the price paid for the property must be fixed when the property is acquired, the indebtedness cannot be contingent on revenue, income, or profits from the property, and the property may not be leased to the person who sold the property to the plan or to any disqualified person and may not be purchased from or leased to the employer maintaining the plan.
Solo 401k Loan: Conclusion
As you can see there are some unique situations that need expert’s help. Self-Directed Solo 401k plan offered by Sense Financial Services gives the account holder the total control and the power to invest his or her retirement funds in any type of investment opportunity except those that are prohibited by the IRS. Please feel free to contact one our our retirement account experts for a free consultation to discuss your specific situation and to help you obtain checkbook control over your retirement account.
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- Solo 401k Limits
- Solo 401k Rules
- Solo 401k Real Estate
- solo 401k loan