Solo 401k Tenants in Common Real Estate Ownership / Purchase

As the public starts to find out that 401k plans including self-employed solo 401k plans and IRAs can be invested in physical real estate, it is nice to know that in addition to using solo 401k funds to invest in real estate, non-retirement funds such as persona funds can also be invested alongside the solo 401k owner’s solo 401k plan. This type of transaction is dubbed “Tenants in common” and following is how title to an investment property is taken under this type of arrangement (TIC). 

Illustration:

60/40 split between Jane Jackson and her Self-Directed Solo 401k ("Jackson Solo 401k Trust")

How to record the deed: Jane Jackson, an undivided 60% interest and Jackson Solo 401k Trust, an undivided 40% interest

This would result in the following important Solo 401k/IRS rules:

• All expenses are divided 60/40 between Jane Jackson and Jackson Solo 401k Trust.

• Any profit is divided 60/40 between Jane Jackson and Jackson Solo 401k Trust.

**A tenants in common (TIC) transaction affords the retirement account holder (solo 401k owner) the option to to partner with his or her Solo 401k to invest in real estate without obtaining financing.

Lastly, while it is not prohibited to partner with your own solo 401k or IRA to invest in real estate under a tenants in common transaction, it is important to also understand the following in addition to the above before engaging in this type of transaction.

• It is not prohibited under tenants in common transaction to invest alongside your own solo 401k as long as the real estate investment property is purchased at the same time and no debt financing is used, not even a non-recourse loan.

• What is more, the solo 401k is prohibited from purchasing real-estate that has ever been owned by the solo 401k owner or by certain family members of the solo 401k owner.

For more information regarding partnering with your solo 401k owner to invest in real estate CLICK HERE.