Office Space Solo 401k Prohibited Transaction Exemption

Generally it is prohibited for the owner of the self-employed business that sponsors a solo 401k to use solo 401k owned real-estate for business purposes; however, just like other things in life, there are exceptions to this rule. 

If the following is met, the solo 401k owned real-estate property can be used for business reasons. 

1.The office space or services are “necessary” for the establishment or operation of the plan;

2.The contract or arrangement under which the office space or services are furnished is reasonable; and

3.No more than “reasonable compensation” is paid for the office space or services.

• See Section 408(b)(2) of ERISA for more information on this exemption.

• Regulations issued by the Department clarify the terms "necessary service" (29 CFR §2550.408b-2(b)),"reasonable contract or arrangement" (29 CFR §2550.408b-2(c)) and "reasonable compensation" (29 CFR §2550.408b-2(d) and 2550.408c-2) as used in section 408(b)(2).

The rules pertaining to prohibited transactions applicable to qualified plans including Solo 401k plans are listed under Section 406 of ERISA.

For more information regarding the solo 401k regulations, VISIT HERE.