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Self-Directed 401k Real Estate FAQ – Can my Solo 401k buy real estate from my own LLC?
QUESTION:
I purchased a piece of land as an investment. I was going to use my SEP IRA to buy the land. The SEP-IRA provider does not allow for investments in individual real estate. The owner of the real estate refused to delay closing so I bought the land through an LLC that I own personally. Can I set up a solo 401(k) and purchase the land from my LLC through my solo 401(k)?
RESPONSE:
Good question -a lot of our clients are looking to use solo 401(k) in order to invest in real estate.
Generally speaking, assuming that one is eligible to set up a Solo 401k (i.e. self-employed reporting earned self-employment income with no non-owner/non-spouse full-time W-2 employees working for any business owned by such person or spouse if any), such person could set up a solo 401(k) and then use the money in the solo 401(k) to invest in real estate subject to the Solo 401k real estate investment rules.
Under the Solo 401k real estate investing rules, a Solo 401k owner is not allowed to buy real estate that such person owns personally or through an LLC that such person owns personally (i.e. a disqualified party).
Please note that the solo 401k owner/participant it not allowed to contribute real estate owned by such person personally to the solo 401(k) because solo 401(k) contributions must be made as cash contributions not as in-kind property contributions.
