For property owned by a self-directed solo 401(k) plan, the following procedure applies when it’s time to sell the property and return the funds back to the solo 401(k) plan.
Because the solo 401(k) plan invested/purchased the physical property, the proceeds from the sale need to flow back to the solo 401(k) holding account resulting in the proceeds continuing to grow on a tax-deferred basis inside the retirement plan. Therefore, capital gains will not apply at the time of the sale.
Documents to Provide to the Title Company For the Solo 401k Property Sale
Trust Agreement & EIN: The title company will request for a copy of the solo 401(k) plan “Trust Agreement” as well as the employer identification number (EIN) for the solo 401k plan.
The trust agreement was provided when you established/adopted the solo 401k plan. The solo 401k plan provider also retains a copy in their records if you can’t locate it.
The EIN for the solo 401k plan was also provided when the solo 401k plan was adopted. The solo 401k plan provider also retains a copy so they can provide it if you can’t locate it. The EIN will be listed on Form W-9 and the title company will most likely ask you to fill out this form. Visit here for information on how to complete a Form W -9.
Tidbits
The solo 401k owned property may not be sold to you (the solo 401k participant), your business or family members such as you parents, and children, for example. Doing so would result in a solo 401k prohibited transaction.
