Solo 401(k) and LLC partnership

3 Replies

So, I'm looking at creating an LLC, with a financial partnership between my solo 401(k) and myself. So, if I find a place that needs rehabbing, can I pay myself for labor out of the LLC since I have at times done lots of the work myself? Or am I a disqualified person despite the partnership?

@Greg Pugh

Good question. That is not allowed because your solo 401k is also a member of the LLC. As long as your solo 401k continues to be a member in the same LLC, you cannot do any of the sweat equity work on the property because you are deemed a disqualified party.

@Greg Pugh

As Mark mentioned, you do not want to receive any income personally from entities which your 401k has ownership in based on the prohibited transaction rules. Even if you do not receive income from the arrangement, you still need to be careful that activities of the proposed partnership do not conflict with the rules. Be sure to seek the appropriate counsel if you are unsure about any of this.

@Greg Pugh

I would advise you against this idea of creating an LLC where you and your Solo 401k are members. While simply creating a two-member LLC like this is not a prohibited transaction, what you will do with it may easily lead to a prohibited transaction.

Just focus on growing your 401k independently, invest in a trust deed, buy a rental property, become a private lender, etc. And personally stay away from any transactions involving your 401k.

But at the same time use your personal savings and resources to invest as well, flip, rehab, etc.

I understand it can be tempting to pull the funds together and do a bitter and better deal but in my opinion the risk is not worth it. 

The wise man once said: “Wealth from get-rich-quick schemes quickly disappears; wealth from hard work grows.” (Proverbs 3:11). Be patient and just do what you can for right now and you will see your wealth grow over time.

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