Solo 401k and Short Term Rentals

4 Replies

How can I use Solo 401k money to fund this investment? I lease a property which I have turned into a short term rental. I am the property manager taking care of marketing and day to day operations. Can I use funds from my Solo 401k to furnish the leased/ rented property? Or if that is in effect disqualified because I 'm loaning money to my own business? Can another non- qualified person use their IRA or Solo 401k to make a loan to me to purchase furnishings for property?

Is it correct to state that a Solo 401k can't own a business( property management for example) but can be set up to receive retirement contributions from that property management business?

@Todd Goedeke

Another non disqualified person could lend you Ira or 401k money to furnish your rental. 

Your property management company can certainly pay you and you in turn make salary deferrals to your company 401k as well as company contributions to your 401k. 

Your 401k could actually invest in a company and own part of the company and receive dividends. You may have to pay UBIT dependent on business and structure. Look up Rollover Business startup(ROBS)

@Todd Goedeke

The rules do not allow for the use of one's own solo 401(k) funds to improve an asset that he or she already personally owns directly or indirectly. 

However, if you have a solo 401k plan, you could take a solo 401(k) participant loan. The rules allow you to borrow 50% of the solo 401k balance not to exceed 50,000. You can then use those borrow funds for any purpose including for improving the property.

Todd,

If you have a self-directed Solo 401k plan you can use those funds to invest in anything, except collectibles. But the IRS rules also prohibit qualified plan to engage in any transaction with 'disqualified person'. The fact that you are considered 'disqualified' by the IRS prevents your 401k from lending to you or the business you own. Otherwise your 401k could extend a loan to any other person who is not considered 'disqualified'. 

George, Good point. Transfer money from IRA to Solo 401k. Use loan from Solo 401k to fund improvements , furnishings, for several STR vacation properties which I am leasing. Other investors may own properties, they being non- disqualified, with their SDIRA or Solo 401k monies.

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