Invest Self-Directed 401k in LP | Invest Solo 401k in Private Company

QUESTION: I would like to have my self-directed 401k purchase shares in an investment company that I do not control.  The shares being purchased are limited partnership shares and my self-directed 401k is purchasing the shares from another company that I do not own.

My self-directed 401k would be purchasing an 82% ownership of this investment company but again this is a limited partnership position and would not make my self-directed 401k the general partner.  Does this sound like something that is allowed?

Thanks for any info.

Dan M. in Maryland

ANSWER: Because the self-directed 401k would be purchasing already issued shares, the plan may not own 50 percent or more of the shares. Visit solo 401k disqualified person to view the prohibited transactions archives of our website.

On the other hand, if this was a newly formed company, based on the famous Swanson vs. The Commissioner (106 Tax Court 76, 1996) and Field Advisory 2001-28011, the self-directed 401k may own 50% or more of a newly formed company. Reason being, a newly formed company is not a disqualified party as long as there  are no disqualified owners prior to the self-directed 401k plan’s purchase of shares or units into the company.

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

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