Solo 401K Questions

[Jimmy Wilson]

Hello everyone, I have been busy learning from these forums and decided that it was time to create my first post. I have questions regarding the Solo 401K and starting a small business. Here goes:

Where I am currently at:

1. I am a W2 with traditional 401K that is pretty close to maxing out the 15K per year contribution (in my 40's). Not looking to touch this setup.

2. Have around 75K in a traditional IRA that was rolled over from previous employer traditional 401K plans. Generally used to invest in mutual funds, currently. Looking to play with this.

Where I want to go:

1. I want to rollover that traditional IRA into a Solo 401K, but I do not have a current business that would qualify me for the Solo 401K, currently.

2. I would like to first setup a small business that manages the passive income from the rent payments of an initial SFH purchased, and any subsequent SFHs to follow after being acquired. After small business is setup, then rollover the traditional IRA into this new Solo 401K account.

What the the best way to go here? Sole proprietor LLC?

3. After small business is established, and the Solo 401K account is established and funded with rollover traditional IRA, I am curious if it is possible to use a 5 year loan to myself from the Solo 401K plan to fund the 20% on purchasing the first SFH in order to rent? It would be with a 5 year repayment at prime plus 1%.

4. My goal is to start with (1) SFH to buy and hold so that I can rent it out. After loan is repaid then buy house number 2 using the same strategy.

5. My goal is to keep the rental property outside of the Solo 401K, while using the self loan to put a down payment on the house to purchase. After 4 years of ownership of the rental property, then sell it for appreciation and roll those profits back through the management company and into the Solo 401K.

Questions:

Is this possible to do?

[Dmitriy Fomichenko]

@Jimmy Wilson ,

I can't advise you which entity would be best in your situation sole-proprietor or the LLC, but it would not matter as far as the Solo 401k concern. Solo 401k plan can be adopted by any type of business: corporation, LLC, partnership, sole-proprietorship, etc.

You can obtain participant loan from the 401k for up to $50,000 or 50% of the balance, whichever is less. The loan can be used for any purpose (including down payment on rental that you personally buying).

Since you planning on purchasing property personally, not inside of your 401k, when the property is sold and you realize profit – you would have to declare it on your personal tax return and pay taxes on it (or do 1031 tax-deferred exchange to postpone paying taxes). You can’t deposit those funds or “roll them over” into Solo 401k, because you personally own the property. The definition of a rollover is when you transfer funds from one retirement plan into another without any tax consequences.

Hope this helps.