Solo 401k -> LLC -> UBTI

[Derek Bennetsen]

New to the website.  Great forum!

I have a Solo401k Trust and am in the process of creating an LLC that is owned and operated by the Solo401k Trust. The LLC will be used to purchase real estate with funds from the Solo 401k Trust. The hope is the LLC will shield the greater assets of the Solo401k Trust in the event of litigation.

When investing in real estate with a Solo401k, profits are not subject UBTI. If profits are realized by the LLC and passed back through to the Solo401k, are they now exposed for UBTI?

[Dmitriy Fomichenko]

If the profits are from passive investments such as real estate then there will be no UBTI. However, if the income is from an active business and passed on to the 401k then it will be subject to Unrelated Business Income Tax.