Solo401k Prohibited Transaction Question

10 Replies

Anyone have an opinion on the following?

I own a property held in a non retirement LLC of which I own 25% and my wife also owns 25% of the LLC. Can I sell this property (owned by the LLC) to a non related buyer and hold a note in my solo401k?

@Dmitriy Fomichenko   or @Steven Hamilton II do either of you have thoughts on this one? You have given me some pretty good advice in the past!

I am wondering (based on nothing more than my experience of learning that things that dont 'seem' like they should be prohibited often are) if there would be any 'self dealing' problem since it could be (possibly) construed that Brandon's Solo401 Account would be 'benefiting' from Brandon having sold his 'personal' property? 

Just a thought, not really sure about it. Better to ask first than cry latter ;-)

Dan Dietz

Daniel Dietz, 3D Property Investments LLC | [email protected] | 608‑524‑4899

Originally posted by @Brandon Powell :

Anyone have an opinion on the following?

I own a property held in a non retirement LLC of which I own 25% and my wife also owns 25% of the LLC. Can I sell this property (owned by the LLC) to a non related buyer and hold a note in my solo401k?

 Yes you can so long as the buyer is not a disqualified party.

Medium be logoWill Barnard, Barnard Enterprises, Inc. | http://www.barnardenterprises.com | Podcast Guest on Show #130

Are you saying your 401k would offer financing to them?  And you simply walk away with the cash?

I would avoid that situation if at all possible you do not want anything to be misconstrued.

Medium hta logoSteven Hamilton II EA, Hamilton Tax and Accounting | [email protected] | (224) 381‑2660 | http://www.HamiltonTax.Net

Not an attorney or an accountant, but this seems to me to violate the "no benefit to the account owner" guideline. Your IRA lending the buyer money to buy a house from you seems to me like its a benefit to you.

Jon Holdman, Flying Phoenix LLC

@Brandon Powell  

That would absolutely be a prohibited transaction in the eyes of the IRS.

By providing the loan to the buyers via your 401k, you are facilitating the sale of the property.  This clearly provides a benefit to you and your wife, both of whom are disqualified to the 401k.

Who setup your Solo 401(k)?  Do they not provide guidance for these types of questions?  They should.

Medium safeguard rgb stackedBrian Eastman, Safeguard Advisors | [email protected] | 855‑997‑2298 | http://www.ira123.com

Originally posted by @Jon Holdman :

Not an attorney or an accountant, but this seems to me to violate the "no benefit to the account owner" guideline. Your IRA lending the buyer money to buy a house from you seems to me like its a benefit to you.

 Perhaps I misunderstood the situation here, I understood it as your 401k holds title and you would then owner finance and the 401k would no longer own the house but the note. If the situation is as Jon laid out, that would be a prohibited transaction.

Can you elaborate on the specifics of the transaction for clarity?

Medium be logoWill Barnard, Barnard Enterprises, Inc. | http://www.barnardenterprises.com | Podcast Guest on Show #130

Thanks for weighing in everyone. 

@Will Bernard

Actually the property is currently held in the LLC of which I own 25% and my wife owns 25% (ie 50% owned by disqualified persons). The other 50% is owned by my brother and his wife.

So my understanding is it would be considered self-dealing and I should steer clear, however if I were to have ownership with the 401k plan then holding a note with the same Plan could be a tool in the tool belt.

@Brian Eastman

Yes I actually have an appointment Thursday with the attorney that set up our Self Directed plan to discuss a few of my questions.  I just wanted to get other opinions prior.

Bigger Pockets forums are awesome!  Thanks everyone for jumping in to answer my question.

I think I will now ask another question regarding Solo 401k Plan issues I am currently trying to figure out in a new thread.

The following websites are good sources for understanding the solo401k prohibited transaction rules. 

http://www.irs.gov/Retirement-Plans/Plan-Participa...

http://www.irs.gov/irm/part4/irm_04-072-011.html

http://www.irs.gov/Retirement-Plans/Plan-Participa...

http://www.irs.gov/Charities-&-Non-Profits/Regulat...

Medium mysolo 401k logoMark Nolan, My Solo 401k Financial | [email protected] | 800‑489‑7571 | https://www.mysolo401k.net/