Our SD 401k Plan Made a Loan. Can We Buy the Property Personally?

[Jeff S.]

We have a loan out on a property using our Self Directed 401k plan. Title is held by our borrower and our SD 401k holds the 1st trust deed. Property was the flip of an enormous house that our borrower turned into a fourplex and then decided to hold for the cashflow – which is substantial.

For a number of personal financial reasons, he's decided to sell the property and asked us if we'd be interested. We are, though only if we could buy it personally using a conventional loan in our names.

This is not unlike any standard purchase and sale except our SD401K plan holds the loan, instead of a third party. Had the loan been with our after tax money, it would be a no brainer.

Our question is, is this a permissible transaction?

I actually paid to speak to an ERISA attorney about this and got the most wishy-washy, non-committal response you can imagine. My CPA, who is extremely knowledgeable about a retirement plans, thinks it's permissible, though he presented a few arguments the IRS/DOJ could use and a few we could use in return. I'm inclined to think it's Ok too, though I could probably argue either way, sort of like the attorney.

What do you guys think? Please explain your rationale. Thanks.

Jeff