Solo 401k Investments and Procedure for Investing in Real Estate

A Solo 401k is type of retirement plan for the self-employed with no full-time employees besides the business owner or his spouse or business partner. What makes the Solo 401k so attractive besides the option to make high annual contribution amounts is the diverse investment types that it may be invest in. From stocks, mutual funds and bonds to non-traditional investments such as precious metals, real estate, private equity, hedge funds, tax liens, promissory notes, accounts receivable, equipment leasing, foreign currency, natural gas, oil, windmills and basically any investment that is no disallowed under the IRS regulations such as collectibles. Real Estate is the number one investment made by Solo 401k plans

Real estate is overwhelmingly the most popular type of investment held in Solo 401k plans. From family homes, commercial real estate, rehabs to apartment buildings, Solo 401k investors are choosing real estate over stocks and equities. Therefore, when investing your Solo 401k in real estate, follow the following procedure:

Procedure for purchasing real estate with your Solo 401k

Determine if the Solo 401k will put up the full investment amount when making the real estate purchase or if it will enter in a tenants-in-common transaction, or will the Solo 401k use obtain a non-recourse loan. For this procedure, we will concentrate on a purchase where the Solo 401k puts up 100% of the proceeds for making the real estate purchase.

When making offer, the Solo 401k, not you personally, must be listed as the buyer. Keep in mind that your Solo 401k plan is making the investment, not you.

As an example, if the name of your Solo 401k is XYZ Solo 401k Trust and your name is Jane Smith, the real estate purchase documents would list the buyer as XYZ Solo 401k Trust, Jane Smith, Trustee

IMPORTANT: It would be prohibited to first list your name on the real estate purchase documents and then later changing them to reflect your Solo 401k.

Process the earnest deposit with Solo 401k funds instead of personal funds, as it would be prohibited to first use your personal funds and then reimburse yourself with Solo 401k funds.

At closing, the trustee of the Solo 401k, typically you as the owner of the Solo 401k will execute the real estate purchase documents and write check from the Solo 401k checking account for the purchase.

Solo 401k vesting will be in the name of the Solo 401k. For example, XYZ Solo 401k Trust, Jane Smith, Trustee.

Going forward, because the Solo 401k owns the real estate, expenses and profits must flow through the Solo 401k plan’s checking account, not your personal bank account.

Lastly, in future articles we will discuss the rest of allowable Solo 401k investments including how Solo 401k can invest in life insurance, and provide procedure for each type.
Sabung Ayam
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