Solo 401k Vacation Rental Question

QUESTION: I have been reading up on Self-Directed Solo 401k and the limits for contributions. I currently have some money that I’d like to rollover from another regular 401k provider and begin investing in property. I also like the idea of being able to contribute amounts up to $50k per year. In regards to purchasing property, I’ve read some about prohibited transactions and the such. Is there anything prohibited from purchasing vacation property outside the US and using it as rental income?


ANSWER: Since the Self-Directed Solo 401k would own the vacation property, the profits would have to flow back to the Solo 401k. Also, expenses (e.g., repairs, property taxes) would have to be paid with Solo 401k funds not your personal funds.

What’s more, since you are a disqualified party, you could not live or vacation in the property, nor could your spouse, daughter, son, parents, grand parents, to name a few. For a full list of Solo 401k disqualified parties and qualified parties visit Solo 401k Investments.


QUESTION: What if many years down the road I wanted to purchase that same property, what issues arise there?


ANSWER: In order to gain access to the vacation rental owned by your Solo 401k, you would need to distribute the poperty in-kind and pay the taxes and early 10% penalty if you are under age 59 ½ at time of distribution.


Any insight would be greatly appreciated.




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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