QUESTION:
I currently have a Trust Deed Investment with a third-party borrower for $350,000 held by me in my individual name. The trust deed is paying me interest at a rate of 12%. The trust deed is a first trust deed collateralized by a property in Denver. I have held this trust deed investment since November 2015. The broker that has administered the trust deed investment with me is located in Tampa. They are my broker in this transaction. I would like my Solo 401k trust to hold this trust deed with instead of me. I just want to make sure this is OK. The Trust Deed investment note will then be in the name Solo 401k Trust and interest will be paid by the third to my solo 401k trust after the close of escrow.
ANSWER:
Such investment would result in a prohibited transaction. You cannot assign an investment that you personally own to your own solo 401k plan.
This would be in violation of the following rule.
“Sale, exchange, or leasing of property between a plan and a disqualified person.”
The plan is your solo 401k, and you are a disqualified party. Other disqualified parties include the following.
- Your Spouse
- Your natural parents and/or your adoptive parents
- Your natural grandparents
- Your natural children and/or your adopted children
- The spouses of your natural children
- Any fiduciary of your Solo 401k
- Any people providing services to your Solo 401k–such as your stockbroker–as well as his employees and both his and his employees’ blood relatives
- Your Solo 401k trust document provider or administrator
