So I have a situation that i would love some feed back on.
A partner and I have formed an LLC to build or flip houses. He is now retired, and I am a GC. He provided the capitol, I provided the know how. So we bought a building lot through the LLC. Then his ability to fund the rest of the project dried up. However, he has a 401K. Here is my suggested scenario:
Partner converts 401K to a SDIRA.
SDIRA purchases lot from LLC for original purchase price.
Money from sale of the lot to SDIRA gets returned to Partner.
Then the SDIRA provides funding for the rest of the house construction.
Upon sale of the property, SDIRA get paid back the full investment amount plus 6%.
The rest gets paid to LLC as a contractors fee.
The two partners then split the contractors fee 50/50.
Is this legal?
This is absolutely not within the IRS guidelines. Any transaction between the IRA account holder and an entity he owns personally would be self dealing and would void his IRA with very severe tax consequences.
Thanks, you just saved me a huge headache.
If your partner is self-employed, he should consider opening a self-directed solo 401k, then transferring his former employer 401k to it and then processing a solo 401k participant loan. He can then use those funds however he wishes, including funding the rest of the project. To learn about he 401k participant loan rules visit the following site:
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