Move into self-directed solo 401k owned real estate condo
QUESTION 1: I have been reading the information about purchasing a condo with my self-directed solo 401K. So my plan is to buy a condo now, rent it out for the next 5+ years and then move into it. How is the 401k effected when I move into it? What must be done?
ANSWER: In order to have personal access to a solo 401k real-estate asset such as a condo, the following applies:
1) the condominium must be appraised;
2) the property deed must be assigned from the solo 401k to the solo 401k participant’s name;
3) tax reporting applies (i.e., a 1099r must be issued); and
4) taxes must be paid on the value of the property.
The end result is that an in-kin distribution of real estate is processed instead of cash; therefore, the 401k distribution rules apply.
QUESTION 2: Also, I believe that I must take required minimum distributions from the solo 401k when I reach age 70 1/2, is that right? If so does that apply to real estate, and what do you do if you are living in the condo?
ANSWER: Yes required minimum distributions (RMDs) apply to self-directed solo 401k plans. In the event that the business owner’s solo 401k plan does not have liquid funds to satisfy the RMD, the distribution can be satisfied by processing an in-kind distribution of the solo 401k plan’s asset(s), whether real estate or other types of assets as such as privately traded company stock, instead of cash.
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