QUESTION:
Is it possible to establish a self-directed Roth IRA and have that Roth IRA invest alongside my solo 401(k) - e.g., by having the Roth IRA invest in a partnership with the solo 401(k) as a partner? If so, do you help establish these arrangements?
ANSWER:
While theoretically possible, this would need to be structured as a tenancy in common (TIC) (where one tenant/owner is the Roth IRA and the other is the Solo 401k) and there are lots of compliance pitfalls - please see more below:
Considerations Re Tenancy in Common
While the rules do allow for TIC transactions, you would need to be able to prove to the government if you are ever challenged that you could have accomplished the transaction without the use of your solo 401k to avoid a PT for enabling. See DOL Opinion Letter 2000-10A.
For example, if you have additional investment vehicles or funds that could be used (e.g., home equity loan, an IRA, personal brokerage account, etc), but you decided to use your solo 401k plan to co-invest with because it was convenient or because it was a good investment for the solo 401k plan, you would have a strong argument to make such investment.
One “cannot” combine Personal funds and 401K funds into a Real Estate investment if there is any loan involved in the transaction.
It is also important to note that a TIC arrangement involving a disqualified person such as the solo 401k participant is executed simultaneously. Your solo 401k plan can’t purchase a property with you a week later buying part of it from the solo 401k plan, for example.
One “can” combine Personal funds and 401K funds into a Real Estate investment if it is an all “cash” transaction, i.e. no loan involved.
In such a transaction, the title would need to reflect the ownership interest of you and your Solo 401k (Ex. Chargers Solo 401k Trust, an undivided XX% interest, and Jane Do,an undivided XX% interest ). Please note that the purchase would need to be all cash (i.e. no non-recourse debt financing is allowed). Going forward, all of the expenses must be paid in accordance with the ownership percentages. Please also note that rental income needs be paid to both owners (e.g. a rental property owned by tenants in common would require the tenants to write separate rent checks for each tenant in accordance with the ownership percentages). See also in the 2nd link below the alternative option of investing in real estate via an LLC.
For more information on tenancy in common, please see the following link:
https://www.mysolo401k.net/tenancy-in-common-tic-vs-llc-real-estate-purchase-using-solo-401k-funds/
Is it possible to establish a self-directed Roth IRA and have that Roth IRA invest alongside my solo 401(k) - e.g., by having the Roth IRA invest in a partnership with the solo 401(k) as a partner? If so, do you help establish these arrangements?
ANSWER:
While theoretically possible, this would need to be structured as a tenancy in common (TIC) (where one tenant/owner is the Roth IRA and the other is the Solo 401k) and there are lots of compliance pitfalls - please see more below:
Considerations Re Tenancy in Common
While the rules do allow for TIC transactions, you would need to be able to prove to the government if you are ever challenged that you could have accomplished the transaction without the use of your solo 401k to avoid a PT for enabling. See DOL Opinion Letter 2000-10A.
For example, if you have additional investment vehicles or funds that could be used (e.g., home equity loan, an IRA, personal brokerage account, etc), but you decided to use your solo 401k plan to co-invest with because it was convenient or because it was a good investment for the solo 401k plan, you would have a strong argument to make such investment.
One “cannot” combine Personal funds and 401K funds into a Real Estate investment if there is any loan involved in the transaction.
It is also important to note that a TIC arrangement involving a disqualified person such as the solo 401k participant is executed simultaneously. Your solo 401k plan can’t purchase a property with you a week later buying part of it from the solo 401k plan, for example.
One “can” combine Personal funds and 401K funds into a Real Estate investment if it is an all “cash” transaction, i.e. no loan involved.
In such a transaction, the title would need to reflect the ownership interest of you and your Solo 401k (Ex. Chargers Solo 401k Trust, an undivided XX% interest, and Jane Do,an undivided XX% interest ). Please note that the purchase would need to be all cash (i.e. no non-recourse debt financing is allowed). Going forward, all of the expenses must be paid in accordance with the ownership percentages. Please also note that rental income needs be paid to both owners (e.g. a rental property owned by tenants in common would require the tenants to write separate rent checks for each tenant in accordance with the ownership percentages). See also in the 2nd link below the alternative option of investing in real estate via an LLC.
For more information on tenancy in common, please see the following link:
https://www.mysolo401k.net/tenancy-in-common-tic-vs-llc-real-estate-purchase-using-solo-401k-funds/
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