I would like to place a gas lease in the Solo 401k

QUESTION:

I would like to place a gas lease in the Solo 401k. The original lease expired, and we are about to sign a new one.

No drilling has been done, so the current value is uncertain. Is it possible to place this in the 401k as a contribution?

If that didn’t work, could I purchase it from my Dad within the 401k?

ANSWER:

Good question. While a solo 401(k) can invest in gas leases, gas lease cannot be deposited into the solo 401(k) as contributions.

Also because your dad is considered a disqualify party, your solo 401(k) cannot buy a gas lease from him.

In order for solo 401(k) to invest in a gas lease,  it would have to be purchased from a third-party that is not considered a disqualified party. Click here to see a list of qualified and disqualified parties.

What is more, your father cannot sell a gas lease to a third-party party and then the solo 401k plan purchases the gas lease from the third-party. This is known as a straw-man transaction which is also a  prohibited solo 401k investment.

Primary Residence 401k Loan – Using Your 401k to Buy a Vacant Lot

Question:

I have over $100,000 in my Solo 401k and want to take a $50,000 401k loan.  If I use the proceeds of my Solo 401Ik loan to purchase land intended to build a house for primary residence, can the term of the loan be longer than 5 years?  Must there by a residence already on the property, or does a vacant lot count?

Answer: 

Generally a 401k loan must be repaid within 5 years.  The 5 year repayment requirement does not apply to any loan used to acquire any dwelling unit which within a reasonable time is to be used as the principal residence of the participant. [Internal Revenue Code Section 72(p)(2)(B)]
A vacant lot is not a dwelling unit – i.e. a building where someone could sleep, eat and reside.
Moreover, given the time that that will take to construct a home on the vacant lot, it will likely be a significant amount of time before the house will be used as your principal residence.
Therefore, purchasing the lot does not qualify for the principal residence loan exception to the 5 year repayment requirement.  As a result, while you can use the proceeds of your 401k loan to buy a vacant lot, the loan must be repaid within 5 years.

 

Can I just invest part of my ROBS 401k in a business?

QUESTION:

Can I take part of my 401K to buy the business and keep the balance invested?

ANSWER:

In short yes.   As part of the establishment process, two accounts will be created: one for the corporation and another account for the ROBS 401(k). We set this account up for the 401(k) at Fidelity (since we don’t hold any of our clients’ funds).  The funds that you don’t invest in the business will be at this Fidelity account and you can invest those funds however you see fit (e.g., mutual funds, stock, bonds , real estate, notes, metals, etc.).

Selling a house in under a year while inside the Solo 401K Trust

QUESTION:

I am buying a house inside of my setup solo 401K.  Are there any negative tax consequences with selling the house in under a year’s time-frame?  I do this business full time and this would be the only property that I have bought to date with the 401K.

ANSWER:

Good question. Generally when real estate flipping is performed inside a solo 401k plan, it will deemed a business and thus subject the retirement account to unrelated business income tax (UBIT). The reason for this tax is to even the playing field for those that don’t use retirement funds to flip real estate.

A rule of thumb is not to flip real estate consistently inside a solo 401k plan.

Tax rates regarding my Solo 401k investments

QUESTION:

I have a question in regards to tax rates regarding my Solo 401k investments.

Once I retire and I have full access to withdrawal from my solo 401K, how will rental income from my investment properties be taxed? Will these be taxed at income tax rates or will these be taxed as passive or portfolio income?

ANSWER:

Distributions from retirement plans including solo 401(k) plans are taxed at earned income tax rates not capital gain tax rates. Solo 401k funds grow on a tax-defer basis until you start making distributions in which case federal and state taxes will apply.

Solo 401k Roundabout Real Estate Transaction

QUESTION:

Is it OK for me to do the following transactions?

  1. Sell a property held in the Solo 401k Trust to a real estate broker.
  2. Buy that same property back from the broker so that I am holding it personally, not in the Trust.
  3. Use the funds now available in the solo Trust to buy a different property from that broker.

The broker says transactions 1 & 2 can happen concurrently.  I want to make sure the IRS won’t have a problem with this.

ANSWER:

Good question. No it is not okay to proceed with such transaction as it would be the prohibited because you can never own a property that has ever been previously owned by your 401(k) plan.  Such transaction is a roundabout transaction/straw-man. To learn more about the solo 401k prohibited transactions, click here.

Podcast: Buying a FedEx Delivery or Bread Route

In this podcast, George Blower interviews Route Business Expert Consultant Tony DiNitto (Owner of RouteTycoon.com) regarding the in’s and out’s of buying a FedEx, Bread or Chip delivery business.  A route delivery business such as FedEx delivery, bread, chips or cookies delivery business is one of the top businesses that My Solo 401k Financial clients fund via our 401k Business Financing plan.

Below is an overview of the topics covered by George and Tony:

  • What is a route business?
  • What are the advantages of a route business compared to other business opportunities?
  • What types of route businesses are there for sale?
  • Why are there so many route businesses for sale?
  • How do I find a route business for sale?
  • What is the difference between a FedEx route and a bread route?
  • How do you evaluate a route business?
  • How long does the process typically take?
  • Explanation of IC to ISP transition

Learn more about 401k Business Financing HERE

Learn more about buying a route business HERE

Boyfriend | Brother |Loan | Real Estate |Business

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/

http://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

Good 60-Day Rollover from a Solo 401k Plan Questions

QUESTION:

Can I withdraw funds from my solo 401k and then put them back within 60 days without being hit by the IRS with taxes and penalties?

ANSWER:

Good question and the answer is no because 20% of federal taxes has to be withheld even if rolled over within 60 days.

QUESTION:

I have a lot of questions on this front.

I guess the rules are different for a 401k than an IRA in that respect? Fidelity wrote me a check for the entire amount of my rollover IRA and did not withhold any taxes. They just asked me to affirm some statement that relieved them of that responsibility. I think.

ANSWER:

Correct that the 20% mandatory federal tax does not apply to IRAs but it does to 401k plans.

See following link regarding this rule:

http://www.mysolo401k.net/does-the-20-federal-tax-withholding-apply-to-all-401k-distributions/

QUESTION:

I assume I would get that withholding back when I file my tax return. Would the withholding amount be treated like any other estimated tax payment at that time? I would be allowed to go ahead and make up for the withholding from other funds when I deposit back into an IRA or a qualified plan, right?

ANSWER:

You  will get back some of the withholding if you don’t owe any other income tax as the 20% is treated as tax on earned income. Therefore, yes the 20% can be viewed as an estimated tax payment. Yes you can make up the 20% from your personal funds if timely rolled over within 60 days.

QUESTION:

Under what conditions is the 20% withholding required? Is it only for in-service withdrawals? Or are all distributions from 401k plans required to withhold 20%? Is the age of the account holder relevant?

ANSWER:

Generally only death and required minimum distributions (RMDs) are not subject to the mandatory 20% federal tax withholding. See the following link: http://www.mysolo401k.net/does-the-20-federal-tax-withholding-apply-to-all-401k-distributions/

QUESTION:

How about this strategy for fun? A direct rollover from 401k into IRA, then a distribution of the IRA with no withholding, then 60-days later a deposit back into the 401k?

ANSWER:

Yes that would be allowed and the 20% withholding would not apply.

RESOURCES

Solo 401k Distributions

Solo 401k Death Distributions

Solo 401k Required Minimum Distributions

Solo 401k Deadlines

Solo 401k from My Solo 401k Financial

A solo 401k from My Solo 401k financial allows for:

  • Alternative Investments such as real estate, notes, tax liens, metals and private equity
  • 401k Participant Loan
  • Roth, pretax and after tax 401k contributions
  • Checkbook control
  • Brokerage and bank accounts

 

 INFORMATION:

Pricing:  https://www.mysolo401k.net/solo-401k/solo-401k-pricing/

Real Estate:

https://www.mysolo401k.net/solo-401k-real-estate-investment-procedure/

https://www.mysolo401k.net/purchasing-real-estate-solo-401k/

Video Webinar: Solo 401k Basics & Top 3 Reasons to Open a Solo 401k 

IRS-approved plan:  https://www.mysolo401k.net/solo-401k-provider/

BBB “A+”:  We have received an “A plus” rating from the Better Business Bureau (BBB)  as confirmed by the BBB.  http://www.bbb.org/sdoc/business-reviews/retirement-planning-service/my-solo-401k-financial-llc-in-carlsbad-ca-172008358/#bbbonlineclick

SIGN UP:

Sign-up: https://www.mysolo401k.net/solo-401k/open-a-solo-401k-account/

Alternatively, please call and we can walk you through the sign up process.

Why our customers choose us? https://www.mysolo401k.net/why-us/

Testimonials: https://www.mysolo401k.net/testimonials/

ADDITIONAL INFORMATION:

Am I self-employed?:

https://www.mysolo401k.net/am-i-self-employed/

 

Solo 401k Loan:

http://www.mysolo401k.net/solo-401k-participant-loan-facts-borrowing-solo-401k-2

http://www.mysolo401k.net/solo-401k/solo-401k-loan/
Real Estate Purchase Methods:

http://www.mysolo401k.net/reale-state-401k-purchase-methods/

Promissory Notes Investment: http://www.mysolo401k.net/secured-notes/

Private Company Investment: http://www.mysolo401k.net/private-company-investment/

Real Estate Purchase Methods: http://www.mysolo401k.net/reale-state-401k-purchase-methods/

Prohibited Transactions: http://www.mysolo401k.net/prohibited-transactions-solo-401k/

Solo 401k Dos and Don’ts: http://www.mysolo401k.net/self-directed-401k-checkbook-control-dos-donts/

Solo 401k Deadlines: http://www.mysolo401k.net/solo-401k-deadlines/

Brokerage vs. Bank Account: http://www.mysolo401k.net/setting-solo-401k-brokerage-account-vs-solo-401k-bank-account/
Solo 401k Annual Contributions:
http://www.mysolo401k.net/solo-401k-contribution-limits-and-types/

 

Solo 401k Funding Methods: http://www.mysolo401k.net/funding-methods-solo-401k-self-directed-401k-individual-401k-solo-k/


IRS Solo 401k: http://www.mysolo401k.net/reason-solo-401k-individual-401k-sometimes-called-irs-solo-401k/

Prohibited Transactions: http://www.mysolo401k.net/prohibited-transactions-solo-401k/

Self-Employment Income: http://www.mysolo401k.net/self-directed-401k-self-employment-income/

IRS Publication 560 (the publication that discuss 401k pans for the self-employed: http://www.irs.gov/publications/p560/ch02.html

  • About MySolo401k

    We help our clients take control of their retirement money. Our products and services provide our clients the freedom to invest their retirement savings in their own business as wells as alternative investments such as real estate, private companies, promissory notes, precious metals, tax liens and equities.
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