Can My Solo 401k Loan Funds to My Business for Real Estate Investment?

QUESTION:

I have a question regarding a real estate investment. My LLC - XYZ LLC bought a property last year through an assumption.XYZ LLC  currently holds title.
We are looking to pay off the current lender through a refi. But, before I start down that road, knowing that most lenders for a LLC want 25% LTV, I was wondering if XYZ 401K could be the note holder on this.
It would be structured as such. XYZ LLC would still hold title.XYZ  would come up with additional funds to bring the out of pocket investment to 20-25% LTV. XYZ 401K would be the lien holder and rather than paying a bank, XYZ LLC would pay XYZ 401K the mortgage. I know I can get a loan for 3.78% so we thought we would pay XYZ 401K 5%.

Would this be considered self dealing? I wasn’t sure. It is our business and it is the business that XTZ Solo 401K is registered under.

ANSWER:

That is a great questions, but unfortunately that would be a prohibited transaction because it would be deemed a loan to your business and the solo 401k owner's business is deemed a disqualified party.

However, you can borrow from the solo 401k through a solo 401k participant loan an use those funds however you wish because, once borrowed form the solo 401k, borrowed funds are no longer deemed solo 401k funds, so you can use them for any purpose. To learn more about the solo 401k loan rules .

To learn more about the solo 401k regulations, VISIT HERE.