Oklahoma City, OK · Member since 2020 · 12 posts · 5 votes
Who here has personal experience setting up a Solo 401k or Roth 401k for Real Estate purchase?
Was the process and on-going record keeping a mess? Did you hire a firm or an expert for the process? Has it all been worthwhile?
I have a good chunk of money sitting in an account from a past W-2 job. I'm now self employed and have an LLC for my real estate investments. I'd honestly love to get that money out and use it for another purchase...
Actually you do not need a custodian with the Solo 401k plan, it is not required unlike with SD IRA. 401k plan/trust can be setup with account holder being the trustee/plan administrator thus eliminating a middle man (custodian) and all related fees that come with it, not to mention red tape, delays and inconvenience.
Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
5y
You do use a custodian, and there are a number of Solo k custodians active on the site who can weigh in. I started with a SDIRA before I was eligible for a solo k, but once the SDIRA is fully divested from real estate I plan to transition to a solo k solely due to UBIT. It's not a complete killer, but it does impact returns.. so there's one big advantage!
Buying real estate with truly self-directed Solo 401k is pretty straight forward. Once the plan is established and funded you fund the property, do your due diligence, make an offer in the name of the 401k, pay for the property from the 401k and take the title in the name of 401k. You do need to keep maintain basic bookkeeping for the property, but it would be no different from personal investments, just different set of books.
Here is a related discussion on the topic which you may find helpful:
Oklahoma City, OK · Member since 2020 · 12 posts · 5 votes
5y
@Dmitriy Fomichenko @Taylor L.
Thank you. I’ve been diving into articles online and it seems like a daunting task but worth it. It’s my understanding that ALL purchases, repairs, etc. must also be made from the account and that rental income must go back into that account, is that correct? And that there are strict rules you must adhere to or else it sends up red flags?
Actually you do not need a custodian with the Solo 401k plan, it is not required unlike with SD IRA. 401k plan/trust can be setup with account holder being the trustee/plan administrator thus eliminating a middle man (custodian) and all related fees that come with it, not to mention red tape, delays and inconvenience.
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
5y
Yes Jenn, your understanding is correct. All transactions must be "arms length". All income from investments owned by the 401k belongs to the 401k. All expenses related to the investments owned by the 401k must be paid from the 401k. Yes, you must follow the rules since you are investing using retirement account, but the rules are pretty straight forward.