Solo Roth 401k strategy

[Scott Kramer]

We own a local condo that we rent, and I serve as the property manager, which pays me $3000 per year to be the property manager (ie, self-employed, single employee, sole proprietor). I'd like to open and fund a Solo 401k. Now that's not a lot of money, but I just want to legitimize the Solo 401k.

Then I want to do a direct IRA transfer of funds from my regular IRA to the Solo 401k IRA ("kosher" tax-deferred to tax-deferred). Afterward, because we're retired and not yet taking RMDs, I plan to do a Roth Conversion into the Roth subaccount of my Solo 401 (k) -(yes, I know I have to pay ordinary taxes). Now I have funds to invest in a real estate syndication LP that will grow tax-free.

Why do all this? It seems that the IRS doesn't apply UBIT to Solo 401(k)s, including Roth sub-accounts (Internal Revenue Code (IRC) Section 514(c)(9) provides a specific exemption for Solo 401(k) plans, including those with Roth).

If you don't mind, I'm asking for your interpretation and hopefully validation. Also, does the condo need to be held in an LLC to create separation of interests?

Thanks for your candid answers,

"Newbie" Scott

[Brett Synicky]

@Scott Kramer

Many people have created property management companies to adopt a solo 401k plan. Correct that Solo 401k is exempt from UDFI which triggers UBIT on leveraged real estate. You can hold the condo however you want, that has nothing to do with the Solo 401k plan. Also a Solo 401k is not an IRA, it's a 401k. Bear in mind that all Roth Conversions have their own separate 5 year rule with the start date being Jan 1 of the year the conversion was made. Get a third party valuation and you may even get a nice discount with a Syndication.