Solo 401K

4 Replies

Can you do a flip with a SD Solo 401K . Do I need to open an LLC in the SD Solo 401K to do the rehab? Any info would be appreciated. Also is a step son a legal person to deal with in a SD account?

@Harold Groetsema  

This is a topic that has been covered extensively with BP.  Check the forums.

A Solo 401k may flip properties.  You or a disqualified party may not perform any of the work.  You are limited to administering the Solo 401k funds - signing contracts, paying for expenses, receiving income.

Gains from flips are considered a business, and therefore subject to a trust tax known as UBTI.  This tax does not apply to passive earnings such as interest on a hard money loan.

Your step son is {technically} not a disqualified party to your plan, but caution is advised.

This can be a very profitable way to grow your retirement savings, but involved several complexities.  You should absolutely speak with an industry professional and/or your tax advisor before proceeding.

@Harold Groetsema  

while you do not have to have an LLC to flip properties in your retirement account, depending on other factors such as total balance of your 401k, the types of investment activities you conduct, the amount of risk you are exposed to - LLC might be helpful tool to limit your liability for that particular investment.

Since flipping activity is considered to be active business the gains will be subject to Unrelated Business Income Tax. Be sure to speak with competent tax expert so you have full understanding of all the facts before you jump in. @Nathaniel Busch  can be good resource, he is expert in the field and has helped several of our clients. 

Thank you for the referral, @Dmitriy Fomichenko. 

Harold, happy to help in anyway I can.

Nathaniel Busch, CPA

[email protected]


The solo 401k prohibited transaction rules are quite complex but the IRS has published the following examination manual to help understand these complex rules.

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