All Forum Posts by: Bryan DeFoe

Quote from @Brett Synicky:

Quote from @Bryan DeFoe:

Hello All, I’m evaluating whether to participate in preferred equity capital calls for two syndications: 

1 - I originally invested via my personal trust and via my solo 401K. I’m now considering contributing the full capital call amount from the solo 401K.

2 - I originally invested through my personal trust, and I'm now considering contributing the full capital call amount from my Roth IRA (via SDIRA).

In both cases, the sponsor would credit my new contribution toward my original investment for purposes of fulfilling the capital call and converting the existing equity into preferred equity. The new funds are being invested in a separate preferred equity vehicle, but the benefits would flow to the entire original investment.

My key question: Does using retirement funds (solo 401K or Roth SDIRA) to support a deal where my personal trust also holds equity create a prohibited transaction under IRS rules, even if the entities are technically investing in different vehicles?

I’m aware that indirect benefit to a disqualified person (like myself or my trust) could raise concerns. I’d appreciate views or a referral to someone familiar with ERISA and retirement-plan investing in syndication deals.

 It's when people try and get creative and cute when they get in trouble. If you have to go out of your way to justify probably not a good idea. You don't need an attorney to answer this question and other than having the same prohibited transaction rules ERISA has nothing to do with this. 

The simple question to ask is this: "Am I or any disqualified party going to benefit directly or indirectly if my retirement account performs this transaction/activity?" If the answer is yes, then it's a prohibited transaction. 

For 1 - I think the answer is yes if I contribute the full cap call amount from the 401k.

But what if I just contribute the prorata amount from the 401k that is linked to the original 401k investment? Would it only be benefiting the qualified party?

Thanks!

Quote from @Jason Malabute:

You can't use a Solo 401(k) or Roth IRA to fund a capital call originally made by your personal trust, even if the funds go into a different equity class—doing so creates an indirect benefit to a disqualified person (you or your trust), which is a prohibited transaction under IRS rules.

Would contributing only the solo 401k’s proportional share of the cap call (assuming the sponsor clearly segments that amount into preferred equity linked only to the 401k’s original interest) still be a prohibited transaction?

Thanks!

Hello All, I’m evaluating whether to participate in preferred equity capital calls for two syndications: 

1 - I originally invested via my personal trust and via my solo 401K. I’m now considering contributing the full capital call amount from the solo 401K.

2 - I originally invested through my personal trust, and I'm now considering contributing the full capital call amount from my Roth IRA (via SDIRA).

In both cases, the sponsor would credit my new contribution toward my original investment for purposes of fulfilling the capital call and converting the existing equity into preferred equity. The new funds are being invested in a separate preferred equity vehicle, but the benefits would flow to the entire original investment.

My key question: Does using retirement funds (solo 401K or Roth SDIRA) to support a deal where my personal trust also holds equity create a prohibited transaction under IRS rules, even if the entities are technically investing in different vehicles?

I’m aware that indirect benefit to a disqualified person (like myself or my trust) could raise concerns. I’d appreciate views or a referral to someone familiar with ERISA and retirement-plan investing in syndication deals.