BACKGROUND: I want to use the money/funds in the Solo 401K Trust to buy and flip a house. I have to use both Solo 401K and cash. The cash will come from my S-Corp.
QUESTION 1: Do I have to use ALL of the $$ in the Solo 401K Trust to put into this deal, or can I just use some of it? I heard somewhere that I must use all of it.
ANSWER: The regulations permit the use of partial solo 401k funds to purchase a house as an investment in a solo 401k. What is more, personal and/or business funds may also be used in conjunction with solo 401k funds when investing in real estate including a house. This is common when the solo 401k does not contain enough funds to make the house purchase. When personal and retirement funds such as funds from a solo 401k plan are both used to purchase a house, the transactions is categorized as a tenants-in-common transaction and certain rules apply. Click here to learn about these rules.
QUESTION 2: how do I take title of the house? Should the Solo 401K Trust be an owner alongside with my S-Corp, or should the money from the Solo 401K Trust be given to the S-Corp and only the S-Corp takes title of the house?
ANSWER: Good question. Because both solo 401k funds and S-Corp funds are used to purchase the house, title the property must be taken in both names (i.e., in the name of the S-Corp and the solo 401k trust), and the ownership percentages are determined on the amount of money put in by each party to the transaction. Click here to read examples of titling this type of investment.
QUESTION 3: What have you seen (and known) in all these years working with Solo 401K Trust?
ANSWER: In my 20 years of experience, I have seen it all. For instance, I have seen investors pool their funds (both personal and solo 401k and IRA funds) by investing in an LLC and the investment made in the name of the LLC.
Thanks so much for your help,
Cho in Virginia