Interested in self-directed 401k | ROBS 401k | Business Financing 401k

QUESTIONS: I am interested in opening a self-directed 401k with some funds from a previous employer. My goal is to utilize some of the funds for real estate investment. A question that I have at this time though is that I would like to work through an LLC for investment purposes. Is it possible to roll a 401k over to a new self directed 401k that is set up as an LLC? Or instead would the self directed 401k need to buy shares in the LLC as a way to contribute funds?

ANSWER: First, you have to be self-employed to open a solo 401k. Here is what the IRS has published regarding the self-employment requirement.

Generally, you are self-employed if any of the following apply to you.

• You carry on a trade or business as a sole proprietor or an independent contractor.
• You are a member of a partnership that carries on a trade or business.
• You are otherwise in business for yourself (including a part-time business)

ANSWER CONTINUED: The solo 401k can either be invested directly in real estate whereby title to the property is taken in the name of the solo 401k or the solo 401k funds can be invested in an LLC and title is then taken in the name of the LLC. It is important to note, however, that the solo 401k may not invest in your own LLC directly (that is your own business).  If you want to invest retirement funds in your own real estate business, then the ROBS 401k may be an option. To learn more about the ROBS 401k click here.  To learn more about the real estate operating company requirements click here, as these rules apply to the ROBS 401k.

MORE QUESTIONS: My second question is probably a no brainer but I would like to confirm this. Any profits that come out of real estate activities would need to go back into either the LLC or the 401k is that correct? Or is there a way to supplement my current income with income from investment activities?

MORE ANSWERS:  Correct that if the solo 401k is invested in real estate, whether directly or indirectly using an LLC, the profits would need to flow back to the solo 401k or the LLC, not your personal bank account.

However, if a ROBS 401k arrangement is incorporated, you can take a fair salary because you would be an employee of the business funded with 401k funds. To learn more about drawing a fair salary, visit here.

Personally using Roth Solo 401k Real Estate Property

QUESTION: Before I make the decision on the Roth solo 401k in-plan conversion, I have a few more questions, so bear with me. Are the rules the same in regards to use of the property? Since I will be paying the taxes on the total amount of the property value, does that remove the restriction on usage of the property? The last question I have is related to the deed of the property, do I have to change the designation of ownership to record the Roth Solo 401K as the new owner.

ANSWER:  No you cannot use the property because it will still be owned by the solo 401k. Yes it is best that the deed is recorded to show that the Roth now owns the property, so title should reflect as follows if the Roth owns the entire property.

Solo 401k name (ROTH)

Additional Information

New Roth Solo 401k Conversion Rules 

Roth Solo 401k Distribution Rules

Can you have an IRA and a Solo 401k Plan?

QUESTION: Are the limitations between contributing to an IRA or a 401k confined only to contributions or are you only allowed to have one or the other. So, if we were to set up an IRA in the future and roll the assets of the 401k into it - are we then bound to only contribute to the IRA from that point forward or are we allowed to roll the assets into the IRA and then continue contributing only to the 401k?

ANSWER: An individual is allowed to participate in an IRA and a solo 401k at the same time; however, the tax deductible contributions to an IRA are affected if you are also contributing to a solo 401k plan. See following link for more on this. 

http://www.mysolo401k.net/contribute-ira-llc-self-directed-401k-magi-rules/