BACKGROUND: I am looking to use self-directed 401k funds to purchase multifamily apts. I will also require financing.
As part of the deal I would also earn a management fee based on the cost of building.
QUESTION: Are there any conflicts with this arrangement in terms of me getting the fee now? I want to avoid penalty withdrawal taxes and be able to take the fee.
Linda in New York
ANSWER: The solo 401k owner may not receive compensation as a result of his or her 401k investment in the property, whether multifamily apartments or office buildings. Reason being, the solo 401k owner is deemed a disqualified party and thus may not personally benefit as a result of a solo 401k investment. By receiving management fees from the asset of the solo 401k (in this case the office building or multifamily apartment buildings), you would be personally benefiting and it would violate the following specific prohibited transaction rule.
- The receipt of consideration by a fiduciary for his or her own account from any party dealing with the Solo 401k plan in a transaction that involves Solo 401k plan income or assets.