Buy house with Solo 401k

QUESTION: Wanted to ask you if there was any paperwork involved if I took money out of my self-directed Solo 401k account to purchase a house in Seattle Washington, or do I just make check out to the title company?

Thanks,

AH

ANSWER: The answer depends on the following 3 options:

Option 1:  If your plan is to invest the Solo 401k plan in a Seattle Washington house, then the Solo 401k will own the house and you cannot use it or live in it as it would run afoul with the Solo 401k prohibited transaction rules. 

Basically the Solo 401k purchase of a house or other real estate will need to be documented using purchase contract, settlement agreement, escrow instructions, preliminary deed and recorded deed.  You can learn what steps to follow when investing Solo 401k in real estate by visiting following links and use real estate purchase form to further document the solo 401k plan’s purchase of real estate.

http://www.mysolo401k.net/SelfDirected401k.html

http://www.mysolo401k.net/Blog-for-MySolo401k.html?entry=purchasing-buying-real-estate-with

http://www.mysolo401k.net/Free-Solo-401k-Investment-Forms.html

Option 2: If your intention is to use Solo 401k to buy a house that you will be personally using or living in, then it would not be considered a Solo 401k investment in real estate. Instead, you will need to process a Solo 401k distribution and pay the applicable taxes before using the Solo 401k funds to purchase a personal home. Please visit Solo 401k distributions as the Solo 401k distribution would need to first be documented in writing and mandatory federal taxes paid, if you qualify for Solo 401k distribution.  As a result, you would own the house personally outside of your Solo 401k trust.

Option 3: If your plan is to process Solo 401k loan and use the proceeds to purchase a house for use as your primary residence, then the Solo 401k loan rules must be followed.  For example, the Solo 401k loan rules permit each Solo 401k trustee to borrow 50% of his or her Solo 401k balance not to exceed $50,000 and pay it back over 15 years. To learn more about Solo 401k loan, visit Solo 401k loan facts.