Loan solo 401k funds to my LLC

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.

https://www.mysolo401k.net/Solo-401k-prohibited-transactions.html

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:

https://www.mysolo401k.net/Solo401kLoan.html

 

Thanks for your help.

 

Mike in South Carolina

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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