Checkbook Control 401k--Ways to use for RE?

[Matt Fisher]

My wife and I are beginning to pool funds to begin a real estate investing venture.  I have a 401k from a former employer that I would like to leverage to our new business.  I have been researching "Checkbook Control" Solo 401(k)s here and on the web... I like the idea of being able to cut a check from my 401(k) to use in my business!  It's easy to find info on WHAT they are, however it isn't exactly clear HOW I can use those funds in real estate endeavors.  

I would like to hear how you have used these funds in your RE investing.  As always, the more creative the better!  Conversely, are there any prohibited transactions I should watch out for?

Matt

[Dawn Anastasi]

In a way, pretend that it's someone else's money.  You cannot use it in such a way that the money will go into your own pocket, it has to go back to the plan.

For example, if you were to take a portion of the money and put it in your own personal bank account, then you'd have to pay taxes (and penalties) for taking that money. 

If you use the money to buy a property, you cannot self-manage that property or do any work on that property yourself.  Pretend it was someone else's money -- would you work for free?  Of course not, you'd get compensated.  The rental income and expenses would go back into the retirement account.

Now keep in mind that you CAN generally take a personal loan from the Solo 401(k) plan, and pay it back with interest.  That limit is 50% or $50,000 whichever is less.  So in that one sense you could personally benefit from the Solo 401(k) plan however you are paying the plan back with interest.

You could also loan out other money as an investment out of your Solo 401(k) to other real estate investors, and get a return.  (Example: they are doing a flip.)

There are many ways to use your Solo 401(k) for real estate investing.  I've given some broad sweeping examples and generalizations and so you'd need to check with your own financial situation and Solo 401(k) plan administrator (and financial adviser, and maybe CPA) to make sure what is right for you.