Hi! I’m currently working full time (on W2) and have money in my employer 401k. I found another full time job and will have 10 days in between the two jobs. I am planning to roll over the 401k into a Solok, but have a few questions :
1. After rolling over the money, can I make additional contributions to my SoloK going forward (every year), even though I’ll be a W2 employee? Or is this a one time deal and I should max out my 401k before I rollover?
2. My wife has a SoloK as well. Can we combine/partner the two SoloK’s and purchase a property?
3. We will probably have 40-50% of the down payment with our SoloK’s combined. If the answer to #2 is a yes, then can we take a loan to make the purchase under our SoloK’s? Would the loan be in both of our names or can it be just one of us?
4. Can I go to local banks/credit unions/lenders for the loan on a SoloK property, or do I need to work with specific banks/lenders?
1. Yes you can make contributions to the solo 401k while also participating in your day-time employer's 401k provided you have net self-employment income. What is more, the employee contributions are aggregated between all 401k plans but the profit sharing contribution are not. See following for more on this.
2. Yes the rules allow for investing multiple solo 401k plans in the same property. This can be done through a tenancy- in -common transaction or by pooling both solo 401k plans in a LLC. You will want to work with competent professional who can navigate you through these rules.
3. Yes both solo 401k plans can obtain non-recourse loans. See following for more on this.
You can only rollover your employer 401k into self-directed Solo 401k if you are eligible for it: have legitimate self-employment activity or small business (can be on the side), and don't have any full time employees working for you. If you don't meet above criteria you can not setup a Solo 401k plan.
You can use leverage when buying investment property in your retirement account, however because you are considered to be a 'disqualified person' you are not allowed to provide personal guarantee - therefore the loan must be non-recourse. Here is a list of lenders offering such financing to retirement accounts:
Thank you @George Blower and @Dmitriy Fomichenko ! A quick follow up question on this - I do have a small consulting / freelancing gig on the side and will be a 1099 income, but it will probably be less than $2K for this year. Am I still eligible to rollover $50K and make future contributions that are greater than my annual 1099 income?
Sahil, you need to maintain legitimate self-employment activity in order to maintain your plan. If you expect to continue this gig beyond this year and grow your income - you should be in good shape. If not - then you should go the self-directed IRA route.
Your consulting activity, if ongoing, does make you eligible for a Solo 401k plan. This means you could setup the plan and rollover your $50k from existing retirement accounts. You'll also be able to make contributions to the plan but those contributions will be limited to your 1099 income.
To learn more about he self-employment rules, see the following.
Thanks! I appreciate you all pitching In. I’m now working on the rollover and reaching out to the different lenders.
Individuals with their Solo 401k are also available lenders for purchases of properties.
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