QUESTION: Can my self-directed 401k purchase a building for investment and can it borrow some of the funds for purchase. Is there any conflict if I lease part or all of the building from the self-directed 401k trust.
Josh P. in TX
ANSWER: While the self-directed 401k can purchase a building as an investment since it is not listed as a disallowed investment under the 408(m) regulations, if debt financing is incorporated the loan would have to be in the form of a non-recourse loan to the self-directed 401k. Therefore, because the loan would be to the self-directed 401k, 401k funds would have to be used to make the non-recourse loan payments, and, in the event of default, the borrower’s only recourse would be against the real estate property owned by the self-directed 401k not any other assets of the 401k or the trustee’s personal assets. To learn more about the non-recourse loan arrangement, visit following link: https://www.mysolo401k.net/Blog-for-MySolo401k.html?entry=quick-and-precise-explanation-of
With respect to leasing part of the building from the self-directed 401k trust, the lease would have to be to the self-employed business sponsoring the self-directed 401k and not for your personal use, but rather business usage. Please click here to read our blog surrounding office space exemption and for applicable code sections.