Solo 401k Land Expenses | Paying Expenses with Solo 401k

QUESTION: I don’t know if you can help me with this or not since you are not my client’s solo 401k provider. This Solo 401k has land that is owned by the solo 401k. He has property taxes due, and I am wondering how they get paid out of the account. I would think we just cut a check for them, but his accountant doesn’t think it should be coded as a distribution being the solo 401k owns it.

I appreciate any help you can give me.

Thanks, Tracy L. from Virginia

ANSWER: The accountant is correct.  Since the property is an asset of the solo 401k plan, all expenses associated with the property must be paid using solo 401k funds. Therefore, it is not a distribution and no tax reporting applies.

It is important that the funds for paying expenses for assets held by the solo 401k, such as real estate, flow directly from the solo 401k account to the third party, not the participant’s personal account as it would be deemed a distribution.

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 18 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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