Solo 401k non-recourse loan question aswered

QUESTION: We’re planning to purchase a property with my self-directed Solo 401kfunds, using seller financing for 70% of the purchase. What paperwork do we need to complete to allow us to do it?

ANSWER: When a retirement account such as a Solo 401k plan uses seller financing when investing in real estate, it’s commonly known as debt financing or non-recourse loan.

Under a non-recourse loan arrangement, the loan is to the Solo 401k not the trustee/participant. This is very important to understand because if the loan is to the Solo 401k trustee/participant it will be deemed a Solo 401k prohibited transaction, resulting in taxes and possible penalties.  Furthermore, the non-recourse loan must be documented in writing through a note payable containing the “non-recourse loan language”, the non-recourse loan is, of course, paid back by the Solo 401k. What’s more, since the non-recourse loan is to the Solo 401k, the Solo 401k must be listed as the borrower, not the trustee/participant.

To learn more about non-recourse loan visit following pages and blogs from our website and sister website.

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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