Set up self-directed 401k

QUESTION 1: Once I set up this self-directed 401k can I (acting as the Trustee for the self-directed 401k plan) purchase a rental property (single-family home or condo/townhome), or other types of real estate with the money in this plan?

ANSWER:  Yes the self-directed 401k rules permit real estate such as rental properties as an investment, provided the self-directed 401k prohibited transaction rules are adhered. Further, the IRS has published language on their website confirming the business owner can serve as trustee of his or her self-directed 401k.

QUESTION 2: And then can my daughter be an occupant of this property as one of the tenants?

ANSWER:  No real estate held in a self-directed 401k cannot be occupied by the self-directed 401k owner’s daughter because daughters fall under the self-directed 401k disqualified party list.

The following also may not rent/occupy property owned by the self-directed 401k:

The self-directed 401k owner/trustee

The self-directed 401k owner’s/trustee’s spouse, son, parents, grandparents and the self-directed 401k provider.

QUESTION 3: Would I have to charge here rent? Or could I charge here a minimal amount since I may have other paying tenants?

ANSWER: Whether a daughter of the self-directed 401k owner’s real estate owned property pays rent or not does not come into play because a daughter falls under the self-directed 401k disqualified party list.

Thanks again for all your help,

Susan in in Colorado

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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