Quick question on SD 401K partnering

[Eric M.]

Well, I might have gotten myself into it this time AND my attorney is out of town!!
Couldn't resist a great property at auction today and now I have to figure out the right way to pay for it.
Essentially I have half the cash available in my S-Corp account and half the cash in my SD 401K acccount.
I have never "mixed" a property like this.

Suggestions on cleanest way to structure?
Title in 401K or Corp? Loan from one to other? Partnership on the property and keep expenses divided properly? Something else?

This will be a fix and flip and am not concerned about UBIT.

[Jon Holdman]

My understand is that, no, it would not be. You and your 401k would be partnering on a deal. My understanding is that doing that is OK. But if you already have the property under contract, than having your 401k step into the deal would make it self dealing. "You" in this case means you or any company that you control per the "disqualified persons" rules.

It would essentially be a wholesaling type transaction. Take any sort of partnership and any entities out of the picture. Consider that you get a property under contract. You decide you want your qualified plan (e.g., your SD 401K) to buy the property instead. Too late. You cannot assign the contract to the qualified plan. That's a real transaction and is self dealing. You cannot buy the property and then sell it to the qualified plan, that's self dealing, too.

OTOH, if you and your qualified plan form a partnership ahead of time and the partnership buys a property, there's no self dealing. If the seller is agreeable to letting you void your contract and create a completely new contract, then may you can avoid the self dealing. I don't know. The material I've studied is very clear that if you get a property under contract and then change your mind and want your qualified plan to buy it, too late. What I've read says you have to be very cautious and do your contracts correct from the outset to avoid the self-dealing rules.

Another way to look at the transaction is to ask if you personally receive any benefit. If you do, don't do it. When I formed my IRA LLC, the lawyer who helped with that said the IRA LLC should not even buy properties in the same area where I personally own properties.

Again, though, this is complex stuff and the rules are not cut and dried. Personally, I try to stay away from any grey areas.