By: Mark Nolan
September 30, 2017
Last Updated: June 20, 2020
QUESTION:
Can my solo 401k write a note to my LLC? Do you provide the service to write up the note?
ANSWER:
No as that would result in a prohibited transaction . The rules do not allow for promissory notes to your own business.
QUESTION:
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?
ANSWER:
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.
QUESTION:
ANSWER:
QUESTION:
ANSWER:
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/
Note Assignment Expense QUESTION:
ANSWER:
Yes note assignment expenses can be paid by the borrower and often times is the case.
Note Interest Payment QUESTION:
ANSWER:
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 72.
Charge Points QUESTION:
ANSWER:
Yes and this would grow on a tax-deferred basis in the Solo 401k.
Multiple Lenders QUESTION:
ANSWER:
Yes one can pool their multiple retirement accounts including IRA and solo 401k funds to invest in the same note as long as the borrower is not a disqualified party (e.g., you, your kids, parents, spouse, etc.). The note and the deed will need to list the retirement accounts and the percentages of ownership. If additional funds are later invested in the note, the note at minimum will need to be updated to account for these additional note capital injections. Likewise, once note payments commence, they will need to flow back to the respective retirement accounts (the IRA and the solo 401k) based on the note ownership percentages.
Documenting Note Payoff QUESTION:
ANSWER:
Besides depositing the payoff funds directly into the solo 401k account, no formal payoff documents are required. The solo 401k holding account will reflect the funds deposited.
