A brief background on my situation: My brother and I together purchased my primary home back in 2013. I am 2/3 owner and he is a 1/3 owner. His 1/3 ownership includes a backyard cottage with rentable income. My plan is to buy him out and thus acquire the cottage and rental income with it. My plan is to use my solo 401K for this purpose. We have a purchase agreement for this transaction.
Questions:
1) If I take out a loan from my Solo 401K (Plan on taking 50,000 as I would roll over 112,000 K) to purchase 1/3 of the property, would this loan qualify as a loan for my primary residence and thus qualify for the 15-30 year loan repayment time? No because you already own part of that property.
2) After taking a loan of 50,000 (the max allowed), am I able to take a withdrawl from my solo 401K? Is there a limit in how much I can take and how soon after the loan can I take it?
ANSWER:
No a limit does not generally apply and you can generally distribute any funds that you transfer to the solo 401k from former employer 401k plans or IRAs. See the following links for important information on making solo 401k distributions as specific rules and reporting applies.
https://www.mysolo401k.net/making-solo-401k-distributions/
https://www.mysolo401k.net/does-the-20-federal-tax-withholding-apply-to-all-401k-distributions/
Question:
3) Another scenario if I don’t do the transaction above is to invest in a business that is co-owned by my boyfriend (he is 50% owner). If in the future we were to marry would this investment fall out of compliance with the 401K regarding arms length transactions?
ANSWER:
Yes as onCe you marry he will be deemed a disqualified party.
Question:
How so and what would happen in that case?
ANSWER:
You would need to terminate the transaction before your marriage to him; otherwise, your entire account will be subject to taxes and penalties effective in the year of marriage. On another note, when a solo 401k plan becomes an equity investor in a busieness that provides goods or services, unrelated business income tax applies which averages about 38% on investment gains above $1,000. See the following.
https://www.irs.gov/charities-non-profits/unrelated-business-income-tax
