how to structure new RE biz-to use funds from solo 401k-LLC or S corp?

[Suzanne HAINER]

Hello! My sister and I are starting a real estate investment business which will initially be funded with our self directed solo 401k's and regular savings. Our goal will be to buy and sell to flippers or buy and flip ourselves at least 2 properties per year at first. We plan to buy at least one rental property per year for passive income. Initially, we thought an LLC was the way to go but a meeting with a seasoned RE agent and investor yesterday pointed us in the S-corp direction. Is there a difference between the 2 types when it comes to funding your transactions? We have a meeting with a business attorney next week but want to be as educated as possible before that. Thank you to all who take the time to give advice!!!

[Dmitriy Fomichenko]

@Suzanne HAINER 

I highly suggest you speak with knowledgeable and experienced accountant (not business attorney) to help you select the correct structure for your situation. I can recommend fellow BP member @Nathaniel Busch .

@Carol Zeroual is correct that corp. might be more complex to maintain comparing to an LLC. One option you may want to look at is an LLC with S-corp. election (LLC taxed as corporation).

You had mentioned that you are planning on funding your business from savings as well as funds in your Solo 401k. Few things to keep in mind:

• While it is possible under certain circumstances to pull funds together (your personal savings and retirement funds), all transactions must be 'arms length' and will be easy to commit a prohibited transaction. Be sure to consult with knowledgeable expert in this area.
• Retirement funds can be utilized for passive long term investments. When you use them to run an active business out of your 401k - the gains will be subject to UDFI tax at about 35%. Again, consult with the tax expert.

Hope this helps. Take care.