Solo 401K: Exemption from prohibited transaction (PT) for Office Space & Other Necessary Services

Contracts or arrangements between a Solo 401k plan and a party in interest for office space or legal, accounting, and other services or combination of services are exempt from ERISA’s prohibition against transactions between plans and parties in interest if:

1.       The office space or services are “necessary” for the establishment or operation of the plan;

2.       The contract or arrangement under which the office space or services are furnished is reasonable; and

3.       No more than “reasonable compensation” is paid for the office space or services.

• See Section 408(b)(2) of ERISA for more information on this exemption.

•  Regulations issued by the Department clarify the terms "necessary service" (29 CFR §2550.408b-2(b)),"reasonable contract or arrangement" (29 CFR §2550.408b-2(c)) and "reasonable compensation" (29 CFR §2550.408b-2(d) and 2550.408c-2) as used in section 408(b)(2).

 The rules pertaining to prohibited transactions applicable to qualified plans including Solo 401k plans are listed under Section 406 of ERISA.