I’ve been on your blog and website looking at the wealth of information.
I do have a few questions for you to confirm regarding IRS guidelines.
We are looking to purchase a commercial building with funds in the Solo 401k account.
We will be financing with our local bank as a non-recourse loan.
QUESTION 1) Can we pay any of the closing costs (i.e. commercial appraisal, attorney fees, loan origination fee, title insurance, transfer tax) and/or expenses associated with the transaction with funds outside of the Solo 401k account?
ANSWER: Absolutely no you cannot pay closing costs with personal funds because the solo 401k along with the Solo 401k owner’s spouse, children, parents, solo 401k provider and anyone else providing services to the solo 401k is deemed a disqualified party. As such, solo 401k funds must be used for paying the commercial building or any other real estate purchase closing costs.
QUESTION 2) Can we pay escrow amount in cash up front, then overfund at closing from the Solo 401k account, and receive the original cash back? This is acceptable with the closing agent.
ANSWER: No the solo 401k owner nor any disqualified person may not use personal funds for the escrow deposit because of the disqualified party rules. Further, even if the solo 401k owner or disqualified party was later refunded by the solo 401k or the escrow agent, it would still be prohibited because it would be considered a loan by a disqualified party to the solo 401k.
QUESTION 3) We can only structure a Tenants-in-Common deal with a second party/entity that is not a blood relation – correct? (i.e., cannot use an LLC in our name for additional cash).
ANSWER: Please read following pages surrounding the Tenants-in-common rues and note that debt financing (a non-recourse loan) may not be used under a tenant-in-common arrangement where the solo 401k owner or a disqualified party is also a party to the transaction. Simply put, it would have to be a straight-out purchase and also occur simultaneously.
LT in Idaho