Purchasing property I own in an llc with solo 401k funds

[Willie Holdman]

Hi all! I have property in an llc that I would like to put some short term rentals on. The llc owns 40 acres and I'd like to purchase 20 of that for some cabins I'd like to short term rent out. Looking for long term growth with tax advantages. Hence, the solo 401 roth angle. I know you cant purchase property from myself individually but this is in a llc with its own name and all. Is there a way to do this? If not how can I get this idea bringing cash into my solo 401k?

[Brian Eastman]

@Brian Baker

A Solo 401(k) does offer a participant loan provision, but it is capped at the lesser of $50K or 50% of the plan value.  That probably would not help in this proposal.  It also seemed clear to me the goal was to get income from the project tax sheltered into the Solo 401(k), not access the 401(k) for capital to accomplish the deal.  The loan would only accomplish the latter.

The participant loan is typically at prime +1%, so not really the best investment for the plan, especially when you consider you are replacing the pre-tax dollars in the plan with post-tax dollars as you repay the loan.

The Solo 401(k) can be a legitimate tool to access a limited amount of cash to jump-start a personal enterprise.  From the plan perspective it is usually a wash or slight negative outcome.  You are typically better off investing the plan in something that earns better than prime +1% and letting the plan accumulate income tax-sheltered as it is designed to do.