By: Mark Nolan
September 30, 2017
Last Updated: August 18, 2024
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.
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.
https://www.mysolo401k.net/solo-401k/secured-notes/
https://www.mysolo401k.net/buying-promissory-notes-trust-solo-401k/
If I give borrower one loan with my ROTH (30%) and 2nd Participant's pre-tax (70%), what should be the lender name? Should the lender be Solo 401k Trust FBO One Participant (Roth)[30%]/Solo 401k Trust FBO 2nd Participant (pre-tax)[70%]? or should the lender be Solo 401k Trust FBO 1st Solo 401k Participant[30%]/Solo 401k Trust FBO 2nd Solo 401k Participant [70%]? Trustee keep record it is pre-tax or Roth and don't list on lender name?
When a Solo 401(k) participant gives a loan with different account types, such as Roth and pre-tax, the loan should be titled in the name of the Solo 401(k) plan itself, not under individual participants' names. Therefore, the lender name should be "Solo 401k Trust." The specific allocations of Roth and pre-tax funds, such as 30% from the Roth account and 70% from the pre-tax account, are tracked internally at the plan level. The trustee is responsible for keeping records of the contributions as either pre-tax or Roth, but this distinction is not included in the lender name.
Then when borrower pay interest, the check should be paid to who in above scenario? If interest payment is $1k, borrower write $300 check to Solo 401k Trust FBO 1st Solo 401k Participant, and $700 check to Solo 401k Trust FBO 2nd Solo 401k Participant?
In the scenario where a borrower is repaying interest on a loan involving multiple Solo 401(k) participants, the borrower should make the interest payment to the Solo 401(k) Trust as a whole, not to individual participants. The payment should be made as a single check to "Solo 401k Trust." Once the payment is received, it is then the responsibility of the trustee to allocate the payment to the respective accounts according to the investment percentages. In this case, the $1,000 interest payment would be allocated internally with $300 going to the Roth account of the first participant and $700 to the pre-tax account of the second participant.
Note Assignment Expense QUESTION:
Promissory Note Solo 401k Investment Interest Payments QUESTION:
Charge Points QUESTION:
Multiple Lenders (IRA LLC and Solo 401k) Pooled Promissory Note QUESTION :
Documenting Note Payoff QUESTION:
Currently we have Mortgage Backed Notes in our Solo401K. We do have notes that are in our Pre-tax accounts as well as notes that are in our ROTH accounts We were wondering if we are able to purchase the note or a partial of the note from the Solo401K into our LLC or is that considered a prohibited transaction?
A Solo 401k owner is not permitted to purchase assets, including notes, from their Solo 401k plan into their LLC. This type of transaction is considered a prohibited transaction under IRS rules. Prohibited transactions are designed to prevent self-dealing and ensure that the Solo 401k plan is operated for the exclusive benefit of the plan and its participants, rather than for the personal benefit of the owner or other disqualified persons. The IRS defines disqualified persons to include the Solo 401k owner, their LLC, and other related parties. Therefore, purchasing notes from the Solo 401k plan into the LLC would constitute a prohibited transaction, potentially leading to penalties or disqualification of the Solo 401k plan.
