All Forum Posts by: Yonasan Schwartz

Check out this resource for  info on subdividing:  landflippers.com

@Russell Holmes

You may not want to give up so quickly on subdividing the 10 acres into 2 5 acre lots. Subdividing land is the simplest way to make a profit on it. Check out landflippers.com for more info.

@Carl Fischer

Correct, the contribution of the contract to the trust is how my 401k provider was looking at it but they did not want to provide legal advice, I will be speaking to the attorney tomorrow.

It's great to have the opportunity to speak with knowledgeable people, whether before or after the fact.

Thanks!

@Dmitriy Fomichenko

I would say it is not a loan but a contribution. 

Contributions from the LLC to the 401k are of course not prohibited, but rather encouraged.

This is an academic discussion - I have spoken to my 401k provider and they referred me to their attorney. I will follow his advice. I also spoke to the auction house to see if I could get the LLC credit charge reversed and charge the deposit instead to the trust account, but they were unwilling to do that.

Be that as it may, the distinction here seems to be between loans and contributions, and I would say things that are paid back are loans, and things that are not paid back are contributions. Why do you think this is a loan? If I buy you lunch is that a loan?

@Dmitriy Fomichenko

I'm not sure what you are trying to say. Is that transaction a loan or not? You seem to be saying it is, to which I responded that a loan implies there will be repayment, while in this case there will not be. 

So I am saying it is not a loan and therefore not prohibited. Do you disagree, and if so, why?

@Dmitriy Fomichenko

How did I lend money to the 401k? 

I spent money on behalf on the 401k. 'Lending money or extending credit' implies that the 401k will be paying me back, which is not the case.

@Dmitriy Fomichenko

Clearly everyone here is more knowledgeable than I am. But I am trying to understand here - the various descriptions of prohibited transactions all anticipate the movement of funds OUT of the 401k, or the expenditure of funds jointly between the 401k and a prohibited individual for the benefit of the individual, NOT the benefit of the 401k. For example, if the 401k and the LLC both pay 50% of the price for a property that is titled in the name of the LLC.

But what happened here is that money went INTO the 401k, or alternatively money was spent of behalf of the 401k, for the benefit OF THE 401k. Can someone point me to a source that describes that as a prohibited transaction?

And how would one correct this transaction (which is an IRS requirement)? Have the 401k pay the LLC back? But wouldn't that in and of itself render the original expenditure a loan, which itself is a prohibited transaction?

In summary, prohibited transactions seem to always be defined as using 401k assets for the advantage of the individual. Here I used individual assets for the benefit of the 401k. Again, think of simply depositing money - from the LLC into the 401k is ok, from the 401k into the LLC is prohibited.

Thanks 

@Rob Drum

Haha well so far I like it but if I accidentally screwed it up with my transaction above I'm going to like it a lot less.

Generally though it's a bit of a hassle to set up but once it's set up it's basically a bank account with funds you can invest in whatever (non-prohibited) investments you want, including real estate.

@Brian Eastman 

What I have done to this point is spend LLC funds on behalf of the 401k trust. Now of course directly depositing funds from the LLC to the trust is ok, in fact that is what is supposed to happen.

Are you sure that spending LLCs funds to purchase an asset for the trust is self-dealing? I would think perhaps it is just considered a deposit to the trust.

I will of course work with a professional to deal with this, I did want to get some BP opinions on the matter though.

Thanks

Hi,

I have an LLC out of which I do some consulting, and I set up a solo 401k using the income from that business, from which I would like to do some real estate investing.

I recently bid successfully on some items in a tax auction. I put as the title holder the trust that holds the 401k assets. However, I did not have funds available in that trust account at the time of the auction, so the deposit went on the LLC credit card.

With me so far? Anyhow, I know there are some restrictions on lending money back and forth between the 401k and myself as an individual. For example I don't think I could buy something on my personal credit card, even an investment asset (eg Bitcoin) and then have the 401k trust pay me back and take possession of that asset. Is it the same between the trust and the LLC? If so, how do I treat the funds that were already spent by the LLC on behalf of the 401k trust?

Hopefully that makes sense. Any info is appreciated. 

Thanks