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Tax, SDIRAs & Cost Segregation

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Dmitriy Fomichenko
Tax & Financial Services
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#1 New Member Introductions Contributor
  • Solo 401k Expert
  • Anaheim Hills, CA
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Self-Directed Solo 401k for Real Estate Investors – Q&A

Dmitriy Fomichenko
Tax & Financial Services
Pro Member
#1 New Member Introductions Contributor
  • Solo 401k Expert
  • Anaheim Hills, CA
Posted Jan 15 2018, 18:13

Over the years I’ve seen many questions here on BiggerPockets forum related to various aspects of using self-directed Solo 401k real estate investing. But the challenge is that those questions are spread out across probably hundreds of different threads and some had incorrect or misleading answers.

The purpose of this thread is to consolidate the questions and provide investors utilizing this vehicle with the useful guide for the years to come. Please do not post questions related to Checkbook IRA, investing in cryptocurrency, precious metals or other alternative assets not related to real estate in this thread, there are other forum topics addressing those issues, simply search the forum or post your question in a new thread.

Let me begin with the question that comes up quite often:

“Can I partner with my self-directed Solo 401k plan to make a joint investment?”

Answer:

You are considered to be “disqualified person” to your Solo 401k. IRS rules prohibited any direct or indirect benefit for such person from his/her retirement account, and as such you are not allowed to furnish any service, goods or facilities to your 401k:

https://www.irs.gov/retirement-plans/plan-particip...

While in some instances it might be possible to get into an investment together with a disqualified person you must be very careful! In my experience dealing with thousands of clients and reviewing many potential transactions involving disqualified person the end result was a prohibited transaction. You also must remember that while in the beginning transaction might be structured in compliance with the rules there is always likelihood of it leading to prohibited transaction in the future because of disqualified person's involvement.

Once you have your personal funds and 401k funds in the same deal you are now opening a “can of worms” and the burden falls on you as the tax payer to proof that there are no personal benefits from your use of the 401k funds, and 401k did not benefit from the use of your personal funds. In most cases that is exactly why the 401k account holder wanted to partner. Don’t do it!

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