ForumsReal Estate InvestmentsLiving in your own 401K-owned property

Forums Solo 401k Real Estate Investments Living in your own 401K-owned property

  • Living in your own 401K-owned property

    Wendy M replied 4 weeks ago 2 Members · 6 Posts
  • 5 Replies
  • Top SubjectReal Estate Investments
    Top ForumsReal Estate Investments

    Wendy M
    Top SubjectReal Estate Investments

    April 18, 2024 at 10:47 am

    Is there a way to sell a property owned by my 401K to myself, using a third-party sale in the middle perhaps? Like, sell it to my sister, who then sells it to me?

    Or is it possible to receive the “benefit/distribution” of the 401K-owned property during my retirement by living in it during my retirement?

    Wendy M
  • Mark Nolan

    Top SubjectSolo 401k,Solo 401k Contributions
    Top ForumsSolo 401k, Solo 401k Contributions

    Mark Nolan

    Mark Nolan

    Top SubjectSolo 401k,Solo 401k Contributions

    April 18, 2024 at 1:31 pm

    No, you cannot sell a property owned by your Solo 401k to yourself or a disqualified person. Pursuant to the IRS prohibited transaction rules, real estate held in a Solo 401k cannot be sold to a disqualified person, which includes you, your spouse, your lineal ascendants, your lineal descendants and their spouses, and certain fiduciaries and service providers to your plan.

    Therefore, a third-party sale in the middle, such as selling the property to your sister and then having her sell it back to you, would still be considered a prohibited transaction and is not allowed as it would be considered a roundabout transaction.

    A roundabout solo 401k transaction refers to a situation where the Solo 401k participant or trustee structures one or more transactions with the purpose of making a prohibited transaction. Prohibited transactions include selling, exchanging, or leasing property between a Solo 401k plan and a disqualified person, which includes the participant, their spouse, lineal ascendants, lineal descendants, and certain fiduciaries and service providers to the plan. Examples of roundabout transactions include:

    Loaning money from the Solo 401k to a disqualified person, even if a third party is involved.

    Selling property owned by the Solo 401k to a disqualified person, even if a third party is involved.

    Exchanging a promissory note owned by the participant for a loan from the Solo 401k.

    These transactions are considered roundabout because they attempt to circumvent the prohibited transaction rules by involving a third party or indirectly benefiting the disqualified person.

    No, you cannot live in a property owned by your Solo 401k. A Solo 401k owner is not allowed to use real state owned by the solo 401k plan. This includes living in the property as a tenant or landlord, as well as using the property for business purposes.

    It is essential to adhere to the rules and avoid engaging in roundabout transactions to maintain the integrity of the Solo 401k plan and avoid potential tax consequences.

  • Mark Nolan

    Top SubjectSolo 401k,Solo 401k Contributions
    Top ForumsSolo 401k, Solo 401k Contributions

    Mark Nolan

    Mark Nolan

    Top SubjectSolo 401k,Solo 401k Contributions

    April 18, 2024 at 1:41 pm

    An in-kind of the solo 401k owned real estate is possible based on the following:

    An in-kind distribution of solo 401k owned real estate refers to the process of distributing the real estate asset from the solo 401k plan directly to the solo 401k owner, rather than selling the property and distributing the cash proceeds.The key points about an in-kind distribution of solo 401k owned real estate are:

    1. It requires a triggering event, such as the solo 401k owner reaching age 59 1/2 or ceasing self-employment.
    2. The property must be appraised by an independent third-party to determine the fair market value, which will be the amount subject to taxation upon distribution.
    3. The property title must be re-recorded to reflect you as the new owner after the in-kind distribution has been processed.
    4. A Form 1099-R still applies: To report the real estate in-kind distribution from the solo 401k to the IRS, a Form 1099R must be issued by January of the year following the in-kind distribution.

Related Blog Posts

Log in to reply.