Use Solo 401k for Car Wash Investment

QUESTION:

I have an opportunity to invest in a car wash in CA. I will be partnering with a local, experienced car wash operator who will be responsible for the car wash operations. My role is to provide equity and oversight. My goal is to participate in the revenue upside.

My understanding is that Business Income will be taxable, but the debt-financed income will not be taxable. For the record, a seller financed interest-only loan is being offered.

I want to check with you first make sure that I am headed in the right direction here and this is feasible through my Solo 401k.

ANSWER:

1)  Please note that if you make an equity investment (via the Solo 401k) in a business that provides goods/services and is taxed as a pass through entity (e.g. S corp, LLC, etc.) the gains that are attributable to that investment will be subject to UBIT.  Please see more at the following link:

2) Please note that your investment must be passive (i.e. you can’t be involved in the operations/oversight of the business), your investment be limited to a minority ownership position, the investment must be titled in the name of the Solo 401k, the other owners must be unrelated persons.

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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