Self-directed Roth 401(k) questions

[David Morgan]

I have a few questions about investing in real estate with a Roth 401(k): 1.) If at age 45 I buy a vacation rental, and at age 59.5 I want to start using it for family vacations, would I first need to distribute the property? And if I then needed to sell it, or I died a year later, how would the basis be determined? (I'm not in a common property state -- would it matter where the property is located? ) 2.) Would seller financing or seller carryback without a personal guarantee count as non recourse lending? 3.) If I max my Roth 401(k) contribution -- let's say I can put no more than $30k into it based on my income -- can I put an additional $5500 into a traditional IRA and roll it into the 401(k)? If so, how soon? 4.) Assuming I have a Roth 401k at etrade, where half my account is tied up in equities, and the other half in cash, can I move the cash portion into a new self-directed 401(k) to use for real estate? How does it work if you want to trade stocks and options as well as real estate and paper? 5.) If I'm a sole proprietor this year, but get smart and form a single member LLC next year for my self employed earned income, can I use the same 401(k), or will I need to start a new one? Thank you for your help!

[Dmitriy Fomichenko]

David,

1) You (and any other "disqualified person") are not allowed to use property owned by your retirement account or receive any other benefit from the investment owned by your 401k. The only way to use it is to take "in-kind distribution", which means that you distribute the property out, not cash. You will have to get the property appraised at the time of distribution to determine it's value and the amount of distribution will be taxable event unless you are taking distribution from Roth and have met the requirements. 

2) Non-recourse lending means that the borrower does not provide personal guarantee for the loan, the underlying asset is the only security for the loan.

3) You can contribute into an IRA independently of your 401k contributions, assuming you are eligible based on your income.

4) If you set up truly self-directed Solo 401k plan you can invest into virtually anything except collectibles and any transactions involving disqualified person. Such plan is established with a 401k trust holding plan assets, it can own real estate, have a checking account, brokerage account, etc.

5) If the sponsoring business type changes you don't need a new Solo 401k plan, you can simply amend the existing plan to reflect the change of the plan sponsor.

Hope this helps!