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.
