Establish Solo 401k in Houston TX

Establish Solo 401k in Houston TX | Invest Solo 401k in Houston TX Real Estate | Loan Solo 401k to Cousin in Houston TX

My cousin lives in Houston TX and is looking into buying real estate in the Houston Texas area before the real estate market heats up.  As such, I see this as an opportunity to grow my Self-Directed Solo 401k while at the same time helping my cousin out. In other words, I would like to invest my Solo 401k through a loan to my cousin so that he can purchase investment real estate in the Houston TX as well as foreign real estate (e.g., Mexico, Costa Rica and Brazil specifically). However, before I proceed with investing my Solo 401k with my cousin in Houston Texas, do you know if such an investment would be deemed a prohibited transaction since I would be loaning my Solo 401k to my Cousin?

The quick answers is yes it is permissible to loan your Solo 401k to your cousin so that he can purchase investment real estate, whether in Houston TX or foreign real estate, provided the Solo 401k benefits from the loan investment.

The long answer is that you still need to proceed with caution. Specifically, even though your cousin does not fall under the disqualified party category (i.e., list of parties that Solo 401k cannot transact business with), your intention for making such investment with your Solo 401k must be for the growth of the Solo 401k not to help your cousin invest in Houston TX real estate. In other words, you will need to make sure you charge your cousin a loan interest rate that substantially benefits the Solo 401k. If you loan your solo 401k to your cousin and charge 1% when the market rate for this type of loan is 10%, the IRS wills most likely rule that the transaction was prohibited since it did not benefit the Solo 401k.  

Lastly, not all Solo 401k providers allow their Solo 401k holders to invest their Solo 401k in alternative investments such as loans, real estate, precious metals; therefore, make sure that you open Solo 401k with a provider whose Solo 401k document allows for investing in alternative investments.     

To learn more about how to invest Solo 401k in a loan, visit investing in notes procedure.

To learn about who falls under the disqualified party category with respect to prohibited solo 401k transactions visit:

http://mysolo401k.blogspot.com/2012/06/who-is-disqualified-from-making.html