Set up a solo 401k for self-directed real estate investment

BACKGROUND: Would like to set up a solo 401k for self-directed real estate investment, using transferred funds from an existing 401K.

Also separate account for my wife to use funds transferred from her existing qualified plan(s).

QUESTION: Can you please share your thoughts on these two items, as we would like to set up a solo 401k before the December 31 tax deadline?

ANSWER: By adopting as self-directed solo 401k, which allows for investing in alternative investments such as real-estate, you will be able to not only transfer funds from an existing 401k, but also make ongoing contributions from self-employment income generated thorough the business that sponsors the solo 401k plan.

It is important to note, however, that if your existing 401k is sponsored by your day-time employer, that employer may place restrictions with respect to transferring existing 401k funds to another 401k such as a 401k for the self-employed (solo 401k). However, under some circumstances day-time employers will allow for the transfer of some of the 401k funds to another 401k or IRA. If you are not 591/2 years of age or older, check with your day-time employer’s 401k administrator and/or ask them for a copy of the Basic Plan Document which is basically the 401k rule book. You may find language in the rule book (the Basic Plan Document) that will allow for the transfer-out/rollover of the employer contributions to another plan or IRA. The foregoing would also apply to your wife’s existing qualified plans.

Note, however, that if your or your spouse’s existing 401k plan is already a self-employed 401k, then much more lenient rules will apply when transferring self-employed 401k retirement plans to a self-directed solo 401k. Reason being, when you are self-employed, the business owner can decide to change self-employed 401k providers and, thus, transfer the existing funds to a self-directed solo 401k provider.
Compliance Note: If you are 591/2 years of age or older, you will be able to transfer the existing 401k proceeds or the vested amount, even if you are still employed.

Investing Solo 401k in real-estate

After the new self-directed solo 401k is setup and the existing retirement funds transferred over, it is time to start investing the solo 401k in real-estate investments. Following is a brief overview of the process, but click here for a full-procedure.

  • Title to the real-estate property investment is taken in the name of the solo 401k.
  • Funding is processed by wiring the funds from the solo 401k bank account to escrow company.
  • Income generated from the real-estate property investment is returned to the solo 401k bank account.
  • Expenses (e.g., property insurance, property tax payment, renovation expenses) in connection with the solo 401k real-property investment are paid with solo 401k funds.
  • Neither you the solo 401k owner/trustee nor certain family members (disqualified persons) (e.g., your spouse, children and parents) may not use the property, even if rent is paid.


Jesse in VA

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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