Solo 401k Lending to itself

3 Replies

With a Solo 401k having a Traditional component and a Roth component; can the Traditional account loan the Roth account funds for the purchase of real estate?

Example:  $100k in Traditional account & $20k in Roth account.  Can Roth account purchase property for $100k utilizing a loan from the Traditional account?  This way the profits from the real estate sale would be tax free in the Roth account.

Thank you for any feedback.

@Wes Aldo

Creative - nice thinking. 

Unfortunately, that isn't the way things work. Both traditional and Roth components can partner side-by-side but one can't provide a loan for the other. As an alternative, you could always seek non-recourse financing for the Roth from a neutral third party. Perhaps the long term tax benefits will outweigh the costs of capital?

@Wes Aldo  

Loren is correct, what you are describing is a prohibited transaction. What you can do is convert your pre-tax 401k into a Roth, then invest with it. This way you will accomplish your goal of profits from the sale being tax free down the road. But the conversion will be taxable event so be sure to speak with the tax expert about tax implications. 

Good thinking Dmitriy. Note that you can perform roth conversations over time (year over year), minimizing your taxable liabilities where possible. You don't have to convert it all at once.

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