While both cash and assets (e.g., real estate, notes, tax liens, precious metals and equities) may be moved via a 60-day rollover from IRAs and solo 401k plans, the same property rule works differently for each type of retirement account.
For IRA to IRA 60-day rollover (this also applies to Roth IRAs, SIMPLE IRAs and SEP IRAs), the same property that was distributed must be rolled over to an IRA or to a solo 401k plan. The account holder cannot receive a distribution of cash and then rollover a rental property that she purchases with the cash. The cash that was distributed from the IRA must be rolled over to an IRA or a solo 401k plan.
Illustration 1: Ben takes a $300,000 distribution from his IRA and uses the proceeds to buy a rental unit. He cannot rollover the rental unit to an IRA or to a solo 401k plan. Because he took the $300,000 as a cash distribution, cash must be deposited.
Illustration 2: Sally takes a distribution of a family home valued at $100,00 from her IRA. The same family home must be rolled over to an IRA or a solo 401k plan. If the value of the property increased to $120,000, for example, the same property still must be rolled over because it is the same property rule not the same-value rule.
The Same Asset Rule Does Not Apply to Solo 401k Plan Distributions
The same asset rule does not apply to distributions from employer plans including solo 401k plans. If you process a distribution from your solo 401k plan and then use those funds to buy a rental property, the property can be deposited into an IRA as long as it is done within the 60-day window. To learn more about the solo 401k rules, VISIT HERE.
Consequence of Running Afoul With the Same Property Rule
The distribution will no longer qualify for the 60-day rollover rule. Therefore, federal taxes and, depending on your state of residence, state taxes will apply in addition to the 10% early distribution if you were under age 59 1/2 at time of the distribution.