Self-Directed Solo 401k

Member since 2024 · 4 posts · 1 vote

I am looking to make my first real estate hard money loan. I have solo 401k and solo roth 401k accounts at Schwab. I understand under the Schwab plans I can not invest in real estate.

What are some recommened providers to roll over to so I can do self-directed?

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Brett SynickyPro Member

Solo 401k and SDIRA Consultant · Orange, CA · Member since 2013 · 876 posts · 499 votes

Quote from @John Smith:

Quote from @Philip Barr:

I don't have specific recommendations for providers, but once you find one that lets you invest in real estate and related transactions, it is important to use an LLC to hold real estate. That will compartmentalize the liability stemming from that property and protect your retirement funds and other assets. It is important to use funds from the retirement plan to pay for the setup of that LLC to avoid prohibited transactions.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Thanks Philip. If I am forming an LLC to be the lending entity, and the members of the LLC will be my Solo 401k Trust and a SMLCC I already own (since I do not have enough funds in my 401k alone to fund the loan), are you saying using personal funds to setup the new LLC and associated loan docs must be paid by the 401k?

John, while this is possible it's best to not combine your personal funds with your retirement funds. You're increasing your chance of committing a prohibited transaction. If you go through with a multi-member LLC in this fashion bear in mind a few things.
1. When the LLC is funded all of the income and expenses must be maintained pro-rata according to the % from each party. The % ownership must be based solely on the money from each member and nothing else.
2. A federal partnership tax return will need to be filed.
3. Additional funds added to the LLC later must be maintained at the original ownership %.
4. You personally need to be able to make the investment without the IRA money otherwise the IRA has engaged in an enabling transaction which can result in prohibited transactions.
5. The penalties are steep for a prohibited transaction in an IRA (distribution of the entire IRA) so if you do this, limit the exposure by only having enough money in the IRA needed to make the investment
6. Multi-member IRA/LLC structures can be complicated. Seek legal counsel as to the proper structure and docs necessary to establish it.
7. Even if you're a member of this LLC, the same rules apply to anything this LLC owns regarding disqualified parties and prohibited transactions.

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Account Closed
Investor · Member since 2025 · 21 posts · 21 votes
1y
Hi John, some things to consider are how active you plan to be with your self-directed account and if you think you'll want to invest in assets outside of real estate. You'll want to make sure the company's fee structure and ability to hold assets works for you. Also take a look at what type of support the company offers at setup, as well as what kind of technology is available to help you manage your account and investments.
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Aryia BalaBusiness Member
Lender · 26 Harbor Park Dr Port Washington, NY 11050 · Member since 2023 · 49 posts · 9 votes
1y
We have a discounted partnership for our Fund Investors. Havent heard any complaints.
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Philip Barr
Attorney · Member since 2025 · 65 posts · 102 votes
1y
I don't have specific recommendations for providers, but once you find one that lets you invest in real estate and related transactions, it is important to use an LLC to hold real estate. That will compartmentalize the liability stemming from that property and protect your retirement funds and other assets. It is important to use funds from the retirement plan to pay for the setup of that LLC to avoid prohibited transactions.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.
2 Reply
- John Smith
  OP
  Member since 2024 · 4 posts · 1 vote
  1y
  Quote from @Philip Barr:
  
  I don't have specific recommendations for providers, but once you find one that lets you invest in real estate and related transactions, it is important to use an LLC to hold real estate. That will compartmentalize the liability stemming from that property and protect your retirement funds and other assets. It is important to use funds from the retirement plan to pay for the setup of that LLC to avoid prohibited transactions.
  
  Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.
  
  Thanks Philip. If I am forming an LLC to be the lending entity, and the members of the LLC will be my Solo 401k Trust and a SMLCC I already own (since I do not have enough funds in my 401k alone to fund the loan), are you saying using personal funds to setup the new LLC and associated loan docs must be paid by the 401k?
  0 Reply
- Brett SynickyPro Member
  Solo 401k and SDIRA Consultant · Orange, CA · Member since 2013 · 876 posts · 499 votes
  1y
  Quote from @John Smith:
  
  Quote from @Philip Barr:
  
  I don't have specific recommendations for providers, but once you find one that lets you invest in real estate and related transactions, it is important to use an LLC to hold real estate. That will compartmentalize the liability stemming from that property and protect your retirement funds and other assets. It is important to use funds from the retirement plan to pay for the setup of that LLC to avoid prohibited transactions.
  
  Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.
  
  Thanks Philip. If I am forming an LLC to be the lending entity, and the members of the LLC will be my Solo 401k Trust and a SMLCC I already own (since I do not have enough funds in my 401k alone to fund the loan), are you saying using personal funds to setup the new LLC and associated loan docs must be paid by the 401k?
  John, while this is possible it's best to not combine your personal funds with your retirement funds. You're increasing your chance of committing a prohibited transaction. If you go through with a multi-member LLC in this fashion bear in mind a few things.
  1. When the LLC is funded all of the income and expenses must be maintained pro-rata according to the % from each party. The % ownership must be based solely on the money from each member and nothing else.
  2. A federal partnership tax return will need to be filed.
  3. Additional funds added to the LLC later must be maintained at the original ownership %.
  4. You personally need to be able to make the investment without the IRA money otherwise the IRA has engaged in an enabling transaction which can result in prohibited transactions.
  5. The penalties are steep for a prohibited transaction in an IRA (distribution of the entire IRA) so if you do this, limit the exposure by only having enough money in the IRA needed to make the investment
  6. Multi-member IRA/LLC structures can be complicated. Seek legal counsel as to the proper structure and docs necessary to establish it.
  7. Even if you're a member of this LLC, the same rules apply to anything this LLC owns regarding disqualified parties and prohibited transactions.
  2 Reply
- Philip Barr
  Attorney · Member since 2025 · 65 posts · 102 votes
  1y
  Quote from @Brett Synicky:
  
  Quote from @John Smith:
  
  Quote from @Philip Barr:
  
  I don't have specific recommendations for providers, but once you find one that lets you invest in real estate and related transactions, it is important to use an LLC to hold real estate. That will compartmentalize the liability stemming from that property and protect your retirement funds and other assets. It is important to use funds from the retirement plan to pay for the setup of that LLC to avoid prohibited transactions.
  
  Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.
  
  Thanks Philip. If I am forming an LLC to be the lending entity, and the members of the LLC will be my Solo 401k Trust and a SMLCC I already own (since I do not have enough funds in my 401k alone to fund the loan), are you saying using personal funds to setup the new LLC and associated loan docs must be paid by the 401k?
  John, while this is possible it's best to not combine your personal funds with your retirement funds. You're increasing your chance of committing a prohibited transaction. If you go through with a multi-member LLC in this fashion bear in mind a few things.
  1. When the LLC is funded all of the income and expenses must be maintained pro-rata according to the % from each party. The % ownership must be based solely on the money from each member and nothing else.
  2. A federal partnership tax return will need to be filed.
  3. Additional funds added to the LLC later must be maintained at the original ownership %.
  4. You personally need to be able to make the investment without the IRA money otherwise the IRA has engaged in an enabling transaction which can result in prohibited transactions.
  5. The penalties are steep for a prohibited transaction in an IRA (distribution of the entire IRA) so if you do this, limit the exposure by only having enough money in the IRA needed to make the investment
  6. Multi-member IRA/LLC structures can be complicated. Seek legal counsel as to the proper structure and docs necessary to establish it.
  7. Even if you're a member of this LLC, the same rules apply to anything this LLC owns regarding disqualified parties and prohibited transactions.
  
  I agree with @Brett Synicky here. While it is possible to partner with your retirement plan via a jointly owned LLC, it is laden with pitfalls if expenses and profits aren't handled just right. It can be a hotbed for prohibited transactions. I wouldn't recommend it until you have a lot of experience investing with your retirement plan and you have legal counsel to guide you in its establishment and maintenance.
  
  Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.
  0 Reply
Jules Aton
MD/DC · Member since 2024 · 1k+ posts · 1k+ votes
1y
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