Solo 401k / multi families

[Robyn Gersh]

How does it work if I were to buy a property partially with my 401k and the other part with a loan from a bank. For example if the property was $600k. The down payment would be $120k. So I could take a portion from my 401k and a portion from my business LLC account. Say $60k from LLC and $60k from 401k. Would it be possible to do this and a portion of the rent would go back into the 401k and a portion into a business account? I am looking to create an income stream as well as plan for retirement.

[Brian Eastman]

@Robyn Gersh

What you propose does not work, despite what you may have seen on the internet.

You are a disqualified person to your 401(k). As such, you may not create a transaction where there is any direct or indirect benefit in either direction between yourself (or a LLC you own, which is still you) and your 401(k).

While there is theory that you and your plan can "very separately joint-venture" into a transaction, it would be very easy for the IRS to find holes in your transaction that create some form of benefit.  For example, if neither party could purchase the property on their own, does combining resource create benefit?  Yes it does.

While that alone kills the deal, you would also need to factor in the concept that any loan where the 401(k) is a party will need to be non-recourse.  You cannot pledge a personal guarantee to secure the plan's debt.  Expect a minimum of 35-40% down and 10-15% cash on hand reserves in the plan to obtain such financing.

With respect to growing your retirement, you need to find entirely stand-alone ways to put the 401(k) to work.