QUESTION: I am thinking about making a loan through my wife and my solo 401k plans (Dynamo is the name of my trust, Bloom is the name of my wife’s trust).
We personally are 60% partners in an LLC that holds real estate (xyz Land Company LLC). The LLC has a loan for its real estate investments. I would like for our solo 401k plans to pay off our portion of the Loan (subject of course to the proper loan amounts allowed in the trusts – i.e. $50,000 each). Would this be considered a prohibited transaction? Is there any way that our 401k’s can pay off the LLC debt?
ANSWER: Unfortunately the solo 401k owners may not loan their retirement funds to a company that the solo 401k owners own as it would be deemed a prohibited transaction. See following section of our website dealing with prohibited transactions.
Essentially, this transaction would fall under the following prohibited transaction.
“Lending money or extending credit between a Solo 401k plan and a disqualified person.”
You are considered a disqualified person because it is your company.
An alternative solution would be to take participant solo 401k loan. To learn more, read following link:
Thanks for your help.
Mike in South Carolina