Solo 401k Real Estate LLC Investment Questions

QUESTIONS/SCENARIOS:

I am about to make an offer on a quad-plex and I need guidance.  I have read up on the process for my Solo 401K, but I still have questions and don’t want to make an offer that doesn’t comply in terms of entities.

  • I have also formed a LLC under which I intend to purchase an investment property.
  • I want to leverage my Solo401K with a non-recourse loan.  I understand that the Solo401K therefore “owns” the asset and all transactions and repairs flow in/out of it.
  • Question:  how can my  Solo 401K invest in this LLC vs being the sole owner of the entire asset?  I ask because under the LLCcan borrow hard money with less down and more options for repairs, payoff, etc?
    • Ex:  if the new LLC was going to buy an apartment building and I wanted to invest $50K of my Solo401K in that deal, alongside other investors, how does that work?
  • Alternatively, I have to invest post-tax cash in a more conventional deal, which I don’t want to do.

 

ANSWERS:

Option 1 is for the solo 401k to be the sole member of the LLC and the LLC gets the non-recourse loan. It would still need to be a non-recourse loan because the solo 401k is the member of the LLC.
To fund the LLC, the funds will flow from the solo 401k bank account directly to the LLC bank account. Since the solo 401k would be the only member of the LLC, the LLC will not need to file a federal tax return on an annual basis.
Title to the investment is taken in the name of the LLC
Option 2 the solo 401k invests in an LLC with other investors (pooled LLC). For the initial funding of the LLC, funds would flow to the LLC from the solo 401k. The LLC will need to file a federal tax return and issue a K1 to the solo 401k.
Title to the investment is taken in the name of the LLC
Option 3 entails the single member LLLC–that is, the LLC where the only member is the solo 401k (option 1 above) and it invests along side other investors. This is essentially a tenants-in-common transaction.
All investors ownership percentages would be listed on the recorded deed.

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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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