ROBS 401K: Real Estate Operating Company Requirements

While the ROBS 401k is often used to fund businesses such as routes (e.g., FedEx) restaurants, car care centers, senior and child care centers and other businesses that offer goods or services,  the ROBS 401k  can also be used to fund real estate ventures as long as the real estate operating company requirements are satisfied.

Real Estate Operating Company Requirements: If you want to use your funds for real estate, the following rules apply:

    • 1) The corporation that you invest your retirement funds in may invest in real estate that satisfies the following requirements:
    • a. At least 50 percent of the assets of the business, valued at cost, must be invested in real estate which is managed or developed and with respect to which such entity has the right to substantially participate directly in the management or development activities.
    • b. Such an entity in the ordinary course of its business must be engaged directly in real estate management or development activities.
    • 2) Expenses related to the real estate will be paid by the corporation.
      3) The real estate will not be used for personal use.
      4)There may be periods of time when the 50% test described in 1(a) above is not satisfied.  This confirms that it would be acceptable as long as the 50% test is satisfied on the following dates: (i) the “initial valuation date” or the first date on which the corporation makes an investment that is not a short-term investment of funds pending long-term commitment; and (ii) at least one day during each annual valuation period.  An “annual valuation period” is an annually recurring period of not more than 90 days that begins no later than the anniversary of an entity’s initial valuation date. For example, if the corporation’s first long-term investment is made on October 3, 2017, that date is its initial valuation date. The first annual valuation period can commence as late as October 3, 2018. An annual valuation period that commences on October 3, 2018, would end on December 31, 2018, and recur each October 3 through December 31 thereafter. Once an annual valuation period is established it may not be changed except for good cause.

 

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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