Anyone using a solo 401k for purchasing properties

Irving, TX · Member since 2016 · 6 posts · 2 votes

Hello, I have a solo 401k that I have not done much with but thought about using it to purchase buy and hold rental properties. I'm interested primarily in multi unit properties duplex to fourplex and would be looking to carry mortgages on any properties purchased. Any experience with this out there? Success stories? Horror stories? All welcome I'm just trying to get a better understanding of this beyond what I've read in books. Or if you know of any good CPA's in or around Dallas Texas knowledgeable about this topic would be great info as well. Thanks!

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Mindy JensenPro Member

BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes

@Rona Faison , an alternative to purchasing the properties could be lending with your Solo 401(k) to others. This is what I do with my Solo 401(k).

The way I do it, is I know a guy who is brilliant with real estate. He brings me deals, I read over what he's proposing, but really, I'm lending to the person more so than the deal. He's about as no-risk as you can get. You want to be super careful if you go this route, as this is still coming from your retirement account. Don't do second position loans, and don't lend to people who give you a bad feeling.

I am NOT looking for borrowers. Please do not send me a note asking if I have any money. I only lend to people I know and this is not a solicitation.

[email protected]Podcast Guest on Show #261

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Justin WindhamPro Member
Banker · Nationwide · Member since 2015 · 4k+ posts · 1k+ votes
9y
@Michael Pulka
If the 401k funds are being used for expenses related to a 401k-owned asset, there are no penalties or taxes. This is just an investment expense. Only if you distribute the funds (take them out of the 401k and receive the funds as income) are there taxes and potentially penalties.
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George Blower
Retirement Accounts Attorney · Southfield, MI · Member since 2017 · 3k+ posts · 1k+ votes
9y
@Michael Pulka
It is not considered a withdrawal because the property is owned by the plan. Therefore, taxes do not apply.
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Andrew K.
Rental Property Investor · Philadelphia, PA · Member since 2016 · 82 posts · 22 votes
9y
At a local REI meeting someone pontificated about creating a note owned by an IRA/401k against real estate owned personally by the same person. Eventually letting the IRA foreclose on the note and taking ownership of the real property by the IRA. That's a prohibited transaction correct?
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George Blower
Retirement Accounts Attorney · Southfield, MI · Member since 2017 · 3k+ posts · 1k+ votes
9y
@Andrew K.
That is only prohibited if the note is to the IRA participant or other disqualified party (e.g., the IRA participant's parents, or kids) and if the property is owned by the IRA participant.
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Andrew K.
Rental Property Investor · Philadelphia, PA · Member since 2016 · 82 posts · 22 votes
9y
@George Blower that is exactly the scenario.
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Dmitriy Fomichenko
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
9y
Originally posted by @Andrew K.:

At a local REI meeting someone pontificated about creating a note owned by an IRA/401k against real estate owned personally by the same person. Eventually letting the IRA foreclose on the note and taking ownership of the real property by the IRA. That's a prohibited transaction correct?
Wow! Whoever did that has no slightest understanding of the IRS rules. Of course this would be prohibited!
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Justin WindhamPro Member
Banker · Nationwide · Member since 2015 · 4k+ posts · 1k+ votes
9y
Originally posted by @Andrew K.:

At a local REI meeting someone pontificated about creating a note owned by an IRA/401k against real estate owned personally by the same person. Eventually letting the IRA foreclose on the note and taking ownership of the real property by the IRA. That's a prohibited transaction correct?
I certainly wouldn't follow that advice. An IRA accountholder cannot transact with his or her IRA. Both the note and the transfer of ownership would be prohibited.
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