Posted over 5 years ago

The Self-Directed 401k FAQs

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Having been in the retirement account industry for 15 years, I have come across a variety of questions surrounding which I have discussed below.

Participant Loans

QUESTION: Can my husband and I both borrow from our solo 401k plan?

ANSWER: Each participant can borrow from the solo 401k provided each has a solo 401k balance; however, the solo 401k loan calculation is based on each solo 41k participants respective solo 401k participant account balance–not the entire value of the solo 401k plan.

For example, if both spouse’s are participating in the same solo 401k plan and have account balances, each can borrow up to the statutory limits described below.
The maximum Solo 401k loan amount is either 50% of account balance or maximum amount of $50K.

– Example 1: Solo 401k balance is $50K; 50% of $50K = $25K (the Solo 401k maximum loan amount)

– Example 2: Solo 401k balance is $150K; 50% of $150K = $75K; however, the maximum permitted Solo 401k loan amount is $50K

– The minimum Solo 401k loan amount is $1,000. To learn more about he solo 401k participant loan rules, .

Prohibited Transactions

QUESTION: My solo 401k plan holds a rental property. Can I buy it from my solo 401k?

ANSWER: No. Reason being, it is prohibited for the solo 401k owner/participant to purchase property from his or her solo 401k plan. This would result in violation of the following prohibited transaction rule:

“Sale, exchange, or leasing of property between a plan and a disqualified person.”

What is more, this same rule applies to round-about/straw-man transactions. For example, you cannot have your solo 401k sell the property to a third-party and you then turn around and buy it from the third-party.

However, you could take an in-kind distribution of the solo 401k owned property, but taxes will apply. To learn more about this, CLICK HERE.

QUESTION: Can I deposit my rental home into my solo 401k plan?

ANSWER: No. You certainly cannot transfer property that you personally own or through your business to the solo 401(k) regardless of whether you sell it at or below market value. Such transaction would be in violation of the following solo 401k prohibited transaction rule.

Sale, exchange, or leasing of property between a plan (e.g., Solo 401k plan) and a party in interest (you or your business).”

Distributions

QUESTION : I will turn 70 1/2 in May of this year, so am I required to take an RMD from my solo 401k plan ?

ANSWER: Since you will turn 70 1/2 this year, this will be your first RMD year. The 2019 RMD will be based on your solo 401k account balance as of December 31, 2018. You can take your first RMD in 2019 or delay until April 1, 2020. However, if you wait to take your 2019 in 2020, you will also need to take your 2020 RMD in 2020. All future solo 401k RMDs must be withdrawn during the calendar year. To learn more about the first RMD rule, .

Employer Identification Number (EIN) for Solo 401k

QUESTION : Do I need to obtain a separate EIN for my solo 401k plan or can I use my self-employed business EIN?

ANSWER: You cannot use the self-employed business EIN for the solo 401k plan, as doing so will result in adverse tax reporting. For more on the IRS view on the importance of using the solo 401(k) EIN for reporting purposes, please .