Transfer IRA LLC Debt Fianced Property to Self-Directed Solo 401k Plan

QUESTION:

My wife has a self directed IRA at IRA Services, One of the assets held there is an investment in a multi-member LLC which in turn owns an apartment project in Springfield Maryland. Due to depreciation and interest expenses, and the IRA’s relatively low % of ownership, earnings have never exceeded $1000 per year.

  • The apartment project is going to be sold early next year, I anticipate this will result in a sizable gain and with the current situation the IRA will be subject to significant tax due to UDFI.
  • My specific question is: if we set up a solo 401k, instruct IRA Services to transfer the IRA owned percentage of ownership to the 401k, and instruct the LLC manager to change the ownership on its records – all before the end of 2016 – will we escape the taxes on the sale on gains in 2017?

ANSWER:

Once an IRA is transferred to a solo 401k, the IRA rules no longer apply; instead, the solo 401k rules apply and a solo 401k plan is not subject to UDFI.

Therefore, the IRA and its assets (e.g., LLC) may be transferred in-kind to a solo 401k plan provided the individual is self-employed with no full-time employees

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

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