Can my solo 401k write a note to my LLC? Do you provide the service to write up the note?
No as that would result in a prohibited transaction . The rules do not allow for promissory notes to your own business.
Is it okay to write an interest only + balloon loan to myself to be used for down payment on investment real estate as I can get better financing personally than my Solo 401k?
No as the rules do not allow for that, but you could take a solo 401k participant loan and we can prepare those loan documents as specific forms apply. Visit here to learn more about the solo 401k loan rules. And click here to learn about the differences between a solo 401k promissory note investment and a solo 401k participant loan.
Can I partner with my Solo 401k on a promissory note investment?
For example, can I make a $160,000.00 real estate loan to a 3rd party with $40,000.00 coming from the 401K, and $120,000.00 coming from me, and just put on all of the loan documents, that the 401K owns a 25% undivided interest of the loan and that I own a 75% undivided interest of the loan?
The 401K would wire $40,000.00 to the title co., and I would second a separate wire of $120,000.00 from my own bank account, to the title company. The borrower would make 2 interest payments every month, one to the solo 401K and one to me for my personal investment portion.
Yes such investment is possible provided the borrower is not a disqualified party. For a list of qualified vs disqualified persons, CLICK HERE
. Also, neither you nor disqualified parties can be employees, officers or directors of the company that will enter into the solo 401k promissory note investment.
What is more, it is best to separately document each promissory note investment and not to do it as a pooled note since you will also hold a promissory note with the same borrower.
Do I have to talk to fidelity to initiate the unsecured solo 401k promissory note? or is that something you help with.
The only role Fidelity or the bank/credit union where the self-directed solo 401k funds are held perform for your solo 401k is to serve as the custodian of the cash.
Therefore, they don’t prepare promissory note documents, hold alternative investments, perform reporting or answer your self-directed solo 401k questions. However, as the solo 401k provider, we can assist with answering your self-directed solo 401k questions and with ongoing reporting for the solo 401k.
You will need to prepare the promissory note document since you are the trustee of the solo 41k or you can get your attorney to assists. We can also provide you with a sample promissory note.
Please see the following promissory note procedures.
Note Assignment Expense QUESTION:
Do the costs associated with assigning a note to a new borrower need to be paid by the 401k trust or can the costs be paid by the borrower?
Just looking to ensure that I’m not creating transaction that jeopardizes the tax status of the note investment.
Yes note assignment expenses can be paid by the borrower and often times is the case.
Note Interest Payment QUESTION:
If I create a solo 401K plan and it invests in a promissory note that pays interest and I get a 1099-INT, does the 401K plan need to pay taxes on that interest? Let’s say I invest $100K in a note that pays 10% interest and I get a 1099-INT for $10K. Let’s say the tax liability for that is $4K. Then does the 401K plan need to pay $4K in taxes?
UBIT does not apply to interest earned on a promissory note investment. Also, Because a solo 401(k) is a tax-sheltered vehicle, note payments continue to grow on a tax-deferred basis and taxes are paid once solo 401k distribution commence, generally at retirement age or age 70 1/2.
Charge Points QUESTION:
If I lend funds from the account as a hard money loan, and I also charge points, are the points also considered a “gain” for purposes of the Solo 401K?
Yes and this would grow on a tax-deferred basis in the Solo 401k.