solo 401k partnering and construction loan

17 Replies

There is a potential flip project. Can a Solo 401k partner in a LLC that has other non-retirement money/partners to acquire the lot, and get a construction loan? Will the construction loan have to be non-recourse?

@Thomas Kwan

Yes a solo 401k can partner in an LLC. The loan would have to be non-recourse to the solo 401(k). The 401K would also most likely have to pay unrelated business income tax as well. You should also make sure that there are no prohibited or disqualified persons running or directing the LLC.

@Thomas Kwan You may want to also triple check to make sure the monies within the 401k can be accessed. If it is controlled by an employer, it may not be allowed unless there is an emergency which must be proven. For example, I can not access anything regarding my employer 401k due to employer policy (not the fund manager). 

@Carl Fischer thanks for the response. Looks like once the solo 401k money is in the LLC, it makes the LLC much less flexible. It has to get a non-recourse loan. Curious if there is any other setup so that the LLC can have flexibility in term of getting any loans.

@Alex Olson thanks for the reminder. it is a self-directed solo 401k so we are good there.

@Thomas Kwan we are working on something similar. Our situation is that we have someone that is willing to use their SDIRA and SOLO401K (on two different deals so thier SD funds would not be getting co-mingled on the same deal) for the 20-25% down payment, and then the joint LLC that we would form between their SD Account and our regular LLC would get a commercial loan from the same lender our LLC used for all of it's loans. This is a small local bank that lends just in the area.

The trick is getting the trick is getting the bank to be OK with only the members of our existing LLC signing the 'personal guarantee' part, which is where the 'recourse' comes in. Our loan officer is going to take the concept to the next board meeting and see how it goes.

With that said, we have an excellent history and reputation with this lender already, and our loan officer feels we are always on the conservative side with our numbers also.

Dan Dietz

A non Ira/401k member can qualify for the loan and it would be non recourse to the IRAs/401k especially if the qualifier was the LLC manager.

@George Blower , Could you please clarify how a person who partners with a 401k can personally guarantee a loan ? Example: Investor A owns 10% of property and is a non retirement fund investor. Investor B is a Solo 401k investor owning 90% of property.A loan/s are put in place on property.What lending institution would allow for a personal guarantee, recourse,loan on only 10% of the property?Would 2 loans be  needed, one loan by recourse investor other loan by 401k investor? Assume that on a million dollar property a down payment of 400k was made and 600k financed,how is loan/s structured to account for 90%/10% equity ownerships of 401k vs cash investor?

My tip I read somewhere that helps me remember of who is disqualified or not is to think of your 'family tree' as a 'cross' with you at the center.

Meaning whoever is 'up or down' (before or after you) like parents, grand parents, kids, grandkids etc... IS disqualified. Whoever it 'to the sides of you' meaning brothers, sisters, etc... is NOT disqualified. Then think of things like cousins, aunts, uncles, etc... would all be 'off to the side' of someone else on the family tree.

It makes sense in my head anyways :-)

Dan Dietz