Commingling LLC and Solok funds

[Yonasan Schwartz]

Hi,

I have an LLC out of which I do some consulting, and I set up a solo 401k using the income from that business, from which I would like to do some real estate investing.

I recently bid successfully on some items in a tax auction. I put as the title holder the trust that holds the 401k assets. However, I did not have funds available in that trust account at the time of the auction, so the deposit went on the LLC credit card.

With me so far? Anyhow, I know there are some restrictions on lending money back and forth between the 401k and myself as an individual. For example I don't think I could buy something on my personal credit card, even an investment asset (eg Bitcoin) and then have the 401k trust pay me back and take possession of that asset. Is it the same between the trust and the LLC? If so, how do I treat the funds that were already spent by the LLC on behalf of the 401k trust?

Hopefully that makes sense. Any info is appreciated. 

Thanks

[Dmitriy Fomichenko]

Yonasan,

based on what you described you committed prohibited transaction (according to the IRS defenition of it):

https://www.irs.gov/retirement-plans/plan-particip...

You or any entity you own (your LLC) along with certain family members are considered to be a "Disqualified person" to your 401k. As you said you just "spent LLC funds on behalf of the 401k" which is prohibited. You must make an effort to understand the rules and ask questions of a qualified experienced professional (should be your 401k plan provider) before you enter into a transaction, not after the fact. 

Truly self-directed Solo 401k is an excellent investment vehicle which can be used to build wealth quickly, but understanding and following the rules is a crucial component to be successful with it. It gives you a lot of freedom and flexibility but with freedom comes responsibility.