Solo 401k UBIT on investment vehicles requiring margin

QUESTION: I've read your UBIT post that stated income from debt financed real estate investments are not subjected to UBIT in a Solo 401(k). I've read elsewhere that proceeds from leveraged investments (trading on margin) is subject to UBIT; is that true? If so, would any trades/investments requiring margin be subjected to UBIT if sufficient cash is available to cover the amount (i.e. margin isn't strictly needed outside of the technical requirement of the trade such as short sale or writing a put option)?

ANSWER: While UBIT does not apply to real estate purchased using solo 401k funds that is leveraged (debt financed), UBIT does apply to solo 401k plans that invest in equities where margin is utilized. However, you are correct that if margin funds are not actually used UBIT will not apply. In other words, just the mere fact of having funds on margin available will not trigger UBIT as long as the margin funds are not actually put to use.

To learn more about the solo 401k rules, CLICK HERE.