QUESTION: I’m the sole owner of real estate consulting company for which I already have a 401k through TD Ameritrade. I plan to continue to keep it as a one employee 401k, but would like to invest the sole owner 401k in real estate properties as well as buy a 2% interest in an LLC that I do work for and serve in a management capacity. Can both of these items be accomplished under your sole owner 401k?
ANSWER: Yes our sole owner 401k plan which we refer to as self-directed 401k because it is for the self-employed and can be invested in alternative investments such as real estate, private companies such an LLC or Limited Partnership, promissory notes, tax liens, precious metals (gold, silver), will be able to accommodate your sole owner 401k alternative investment needs.
One item that I want to bring to your attention, however, regarding your plan to invest the 401k in an LLC where you are employed. Such an investment by your 401k, whether a sole owner 401k or a self-directed 401k, would be deemed a prohibited transaction because you are an employee and a manager of the LLC. On the other hand, if you were not an employee or a manager of the LLC, it would not be prohibited as long as your self-directed 401k would own less than a 50% interest in the LLC. For more on prohibited transactions, click here.