Options to Protect Self-Directed Solo 401k Assets

QUESTION:

Is creditor protection based on your state of residence or where the self-directed solo 401k property is located? For example, I live / am a resident of Texas but plan to invest my solo 401k plan in real estate located in California.

ANSWER:

First, while certainly, the location of the property would be an important factor in determining which state’s laws to apply, the analysis is not always simple and straightforward because it will depend on the facts and circumstances (and often a heavily litigated point in the context of lawsuit).

Second, please take a look at the following chart as it may be a helpful tool for your analysis.  After you get a chance to review, we would be happy to discuss.

  Options to protect Solo 401k assets

 

Liability Arising From:Solo 401k real estate investmentOther Solo 401k assets
Events not related to your Solo 401k real estate investment (e.g. traffic accident, activities of your self-employed business, etc.)(i) State creditor-protection rules (which state’s rules apply depend on the facts and circumstances)
(ii) Federal bankruptcy if you have personally filed for bankruptcy protection
(iii) Personal or business insurance
(i) State creditor-protection rules (which state’s rules apply depend on the facts and circumstances)

(ii) Federal bankruptcy if you have personally filed for bankruptcy protection

(iii) Personal or business insurance

Events related to your Solo 401k real estate investment (e.g. “slip and fall” on a Solo 401k rental property)Property insurance(i) Holding the real estate in an LLC

(ii) Property insurance

Note: The degree of protection will depend on the facts and circumstance and each situation should be analyzed in consultation with your legal counsel.

About George Blower

I have the privilege of educating our clients about our products and services so that they can make informed and confident decisions about their financial future. Prior to joining My Solo 401k Financial, I served as the general counsel for a subsidiary of a Fortune 500 financial services company. Learn more about George Blower and My Solo 401k Financial >>

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