Outcome of a Solo 401k Prohibited Transaction

Effect of Engaging in a prohibited transaction (PT) with a Solo 401k:

  • A disqualified person who takes part in a prohibited transaction with a Solo 401k plan must correct the transaction and must pay an excise tax based on the amount involved in the transaction.
  • The initial tax on prohibited transaction is 15% of the amount involved for each year (or part of the year) in the taxable period.
  • If the transaction is not corrected within the taxable period, an additional tax of 100% of the amount involved is imposed. Both taxes are payable by any disqualified person who participated in the transaction (other than a fiduciary acting only as such).
  • If more than one person takes part in the transaction, each person can be jointly and severally liable for the entire tax
  • The amount involved in a prohibited transaction is the greater of the following amounts:

the money and fair market value of any property given; and

the money and fair market value of any property received.

  • If services are performed, the amount involved is any excess compensation given or received.
  • The taxable period starts on the transaction date and ends on the earliest of the following days:

the day the IRS mails a notice of deficiency for the tax;

the day the IRS assesses the tax; and

the day the correction of the transaction is completed.

  • The tax is paid with Form 5330

Additional Information

Solo 401k Fiduciary Defined

Solo 401k Disqualified Person Defined

Solo 401k Prohibited Transactions Defined

​Correcting a Solo 401k Prohibited Transaction

Regulators of the Self-Directed Solo 401k Industry

Additional Information

Investment Fraud

Targets of Investment Fraud

Reasons Solo 401k Plans are Targets of Fraud

Techniques Used by Fraudsters

Tips for Avoiding Fraud

 

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