Purchasing a Travel Trailer Through the Solo 401K

QUESTION:

I am interested in purchasing a travel trailer through the Solo 401K and rent it out through an independent renting service (RVShare.com). Is this permissible under the rules? I understand that any expenses and payments would originate from within the K, as well as any profits.

ANSWER:

Such investment would be deemed a business activity and thus subject the solo 401k plan to unrelated business income tax (UBIT) on profits over $1,000.

For example, if the return is a $11,000, the solo 401k would owe 40% tax on $10,000 amounting to a $4,000 UBIT payment. In order for UBIT not to apply to a solo 401k plan, the solo 401k investment has to be passive in nature. An example of a passive solo 401k investment is a rental home owned by the solo 401k plan where the rental income flows back to the solo 401k plan.

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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