The solo 401k owner may co-invest her personal funds in the same property as long as she can prove that she could have accomplished the investment without the use of her self-directed solo 401k funds. To lean about the caveats, see DOL Advisory Opinion 2000-10A.
TIC Summary
1) The solo 401k owner “cannot” invest personal funds and solo 401K funds in the same property investment if debt financing will be used.
2) The solo 401k owner may invest alongside her solo 401k in the same property if it is an all cash purchase (no debt financing), and the caveats outlined in DOL Advisory Opinion 2000-10A are followed.
3) Debt financing may be used if the third-party investor is not the solo 401k owner or her relatives (e.g., spouse, parents, children, grandparents, etc.). For a list of disqualified parties, CLICK HERE.
Solo 401k and Personal Funds QUESTION:
Is it possible for real estate to be purchased using non-retirement funds (i.e. personal funds) as well as funds from your Solo 401k via a “Tenancy in Common” transaction?
ANSWER:
Yes under certain conditions outlined above.
For more information on the TIC transaction, please see the following links:
If 2 separate solo 401k plans (husband and wife) enter into TIC to buy property, can they still get non-recourse financing?
ANSWER:
No. Financing would not be allowed because of the solo 401k prohibited transaction rules. However, if both spouses are participating in the same solo 401k plan, debt financing would be allowed because it would not longer fall under the TIC definition. The real estate investment is done under one solo 401k plan so TIC would me a mute point.
401k Loans and Co Investing QUESTION:
Can I combine money from Solo 401k and a loan from a regular 401k account (I currently have a full time job) to fund a real estate purchase?
ANSWER:
While the rules do allow for TIC transactions, you would need to be able to prove to the government if you are ever challenged that you could have accomplished the transaction without the use of your solo 401k to avoid a PT for enabling. See DOL Opinion Letter 2000-10A.
For example, if you have additional investment vehicles or funds that could be used (e.g., home equity loan, an IRA, personal brokerage account, etc), but you decided to use your solo 401k plan to co-invest with because it was convenient or because it was a good investment for the solo 401k plan, you would have a strong argument to make such investment.
It is also important to note that a TIC arrangement involving a disqualified person such as the solo 401k participant is executed simultaneously. Your solo 401k plan can’t purchase a property with you a week later buying part of it from the solo 401k plan, for example.
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